Relational Incentive Contracts with Private Information
AbstractThis paper extends the relational contract model in Levin (2003) with shocks to theagentâ€™s cost of effort (agentâ€™s type) to shocks to the principalâ€™s valuation of the agentâ€™seffort (principalâ€™s type). When optimal effort is fully pooled across agent types formultiple principal types, it is also pooled across those principal types. When optimaleffort separates some agent types for multiple principal types, it is not generally fullypooled across those principal types. But somewhat perversely, effort is then lower forsome principal type for which it is more valuable. Implications for employment andsupply relationships are discussed.
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Bibliographic InfoPaper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 634.
Date of creation: 05 Dec 2012
Date of revision:
Relational incentive contracts; shocks; principal types; agent types;
Find related papers by JEL classification:
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-02-03 (All new papers)
- NEP-CTA-2013-02-03 (Contract Theory & Applications)
- NEP-MIC-2013-02-03 (Microeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jonathan Levin, 2003.
"Relational Incentive Contracts,"
American Economic Review,
American Economic Association, vol. 93(3), pages 835-857, June.
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