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Relational Incentive Contracts with Persistent Private Information

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  • James Malcomson

Abstract

This paper investigates relational incentive contracts with a continuum of privately observedagent types that are persistent over time. For a sufficiently productive relationship,a pooling contract exists in which all agent types continuing the relationshipchoose the same action. Necessary and sufficient conditions are given for some separationto be feasible; the parties can then do better than with full pooling. When futureactions are optimal, however, separation of all types is not possible; the finest separationachievable is into partitions each containing a non-degenerate interval of types.Separation always involves lower output initially than after separation has occurred.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 633.

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Date of creation: 04 Dec 2012
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Handle: RePEc:oxf:wpaper:633

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Keywords: Relational incentive contracts; private information; ratchet effect; dynamic enforcement;

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  1. Jonathan Levin, 2000. "Relational Incentive Contracts," Working Papers 01002, Stanford University, Department of Economics.
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Cited by:
  1. Martimort, David & Semenov, Aggey & Stole, Lars, 2014. "A Theory of Contracts With Limited Enforcement," MPRA Paper 53504, University Library of Munich, Germany.

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