IDEAS home Printed from https://ideas.repec.org/a/bla/jemstr/v25y2016i4p936-957.html
   My bibliography  Save this article

Role of Information Rents in Relational Contracts

Author

Listed:
  • Akifumi Ishihara

Abstract

We study a repeated contracting model in which the agent has private information and the performance measure is unverifiable. In an optimal stationary contract, when the discount factor is not high, the principal's objective shifts from purely reducing the information rent toward increasing the total surplus to sustain the relational contract. As a result, the total surplus is not monotonically increasing in the discount factor and could decrease when the unverifiable performance measure becomes verifiable.

Suggested Citation

  • Akifumi Ishihara, 2016. "Role of Information Rents in Relational Contracts," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 25(4), pages 936-957, December.
    • Handle: RePEc:bla:jemstr:v:25:y:2016:i:4:p:936-957
    DOI: 10.1111/jems.12168
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/jems.12168
    Download Restriction: no
    File URL: https://libkey.io/10.1111/jems.12168?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Dilip Mookherjee, 2012. "Incentives in Hierarchies [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    2. Dirk Bergemann & Alessandro Pavan, 2015. "Introduction to JET Symposium Issue on "Dynamic Contracts and Mechanism Design"," Cowles Foundation Discussion Papers 2016, Cowles Foundation for Research in Economics, Yale University.
    3. W. Bentley MacLeod, 2007. "Reputations, Relationships, and Contract Enforcement," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 595-628, September.
    4. Rocco Macchiavello & Ameet Morjaria, 2015. "The Value of Relationships: Evidence from a Supply Shock to Kenyan Rose Exports," American Economic Review, American Economic Association, vol. 105(9), pages 2911-2945, September.
    5. Robert Gibbons, 1998. "Incentives in Organizations," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 115-132, Fall.
    6. George Baker & Robert Gibbons & Kevin J. Murphy, 1994. "Subjective Performance Measures in Optimal Incentive Contracts," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 1125-1156.
    7. Francine Lafontaine & Kathryn L. Shaw, 1999. "The Dynamics of Franchise Contracting: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 1041-1080, October.
    8. Baron, David P. & Besanko, David, 1984. "Regulation and information in a continuing relationship," Information Economics and Policy, Elsevier, vol. 1(3), pages 267-302.
    9. Robert Gibbons & John Roberts, 2012. "The Handbook of Organizational Economics," Economics Books, Princeton University Press, edition 1, volume 1, number 9889.
    10. Asanuma, Banri, 1989. "Manufacturer-supplier relationships in Japan and the concept of relation-specific skill," Journal of the Japanese and International Economies, Elsevier, vol. 3(1), pages 1-30, March.
    11. James M. Malcomson, 2012. "Relational Incentive Contracts [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    12. Dilip Mookherjee, 2006. "Decentralization, Hierarchies, and Incentives: A Mechanism Design Perspective," Journal of Economic Literature, American Economic Association, vol. 44(2), pages 367-390, June.
    13. Alessandro Pavan & Ilya Segal & Juuso Toikka, 2014. "Dynamic Mechanism Design: A Myersonian Approach," Econometrica, Econometric Society, vol. 82(2), pages 601-653, March.
    14. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
    15. Bergemann, Dirk & Pavan, Alessandro, 2015. "Introduction to Symposium on Dynamic Contracts and Mechanism Design," Journal of Economic Theory, Elsevier, vol. 159(PB), pages 679-701.
    16. Gregory Lewis & Patrick Bajari, 2011. "Procurement Contracting With Time Incentives: Theory and Evidence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(3), pages 1173-1211.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. David Martimort & Aggey Semenov & Lars Stole, 2017. "A Theory of Contracts with Limited Enforcement," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(2), pages 816-852.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Matthias Lang, 2023. "Stochastic contracts and subjective evaluations," RAND Journal of Economics, RAND Corporation, vol. 54(1), pages 104-134, March.
    2. Lang, Matthias, 2019. "Communicating subjective evaluations," Journal of Economic Theory, Elsevier, vol. 179(C), pages 163-199.
    3. Ricard Gil & Myongjin Kim & Giorgio Zanarone, 2019. "Relational Contracting in Developed Economies: Lessons From Slot Exchanges in the US Airline Industry," The Japanese Economic Review, Japanese Economic Association, vol. 70(3), pages 411-421, September.
    4. Karakoç, Gülen & Pagnozzi, Marco & Piccolo, Salvatore, 2022. "The value of transparency in dynamic contracting with entry," International Journal of Industrial Organization, Elsevier, vol. 85(C).
    5. W. Bentley MacLeod & James M. Malcomson, 2023. "Implicit Contracts, Incentive Compatibility, and Involuntary Unemployment: Thirty Years On," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 179(3-4), pages 470-499.
    6. Dirk Bergemann & Juuso Välimäki, 2019. "Dynamic Mechanism Design: An Introduction," Journal of Economic Literature, American Economic Association, vol. 57(2), pages 235-274, June.
    7. James M. Malcomson, 2012. "Relational Incentive Contracts [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    8. Nisvan Erkal & Steven Y. Wu & Brian E. Roe, 2022. "Correction to: Putting relational contract theory to the test: experimental evidence," Experimental Economics, Springer;Economic Science Association, vol. 25(1), pages 140-140, February.
    9. David Martimort & Jérôme Pouyet & Francesco Ricci, 2018. "Extracting information or resource? The Hotelling rule revisited under asymmetric information," RAND Journal of Economics, RAND Corporation, vol. 49(2), pages 311-347, June.
    10. Lewis A. Kornhauser & W. Bentley MacLeod, 2012. "Contracts between Legal Persons [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    11. Daniel Fershtman & Alessandro Pavan, 2022. "Matching auctions," RAND Journal of Economics, RAND Corporation, vol. 53(1), pages 32-62, March.
    12. Liu, Bin & Liu, Dongri & Lu, Jingfeng, 2020. "Shifting supports in Esö and Szentes (2007)," Economics Letters, Elsevier, vol. 193(C).
    13. Bergemann, Dirk & V�lim�ki, Juuso, 2017. "Dynamic Mechanism Design: An Introduction," CEPR Discussion Papers 12240, C.E.P.R. Discussion Papers.
    14. Fahn, Matthias & MacLeod, W. Bentley & Muehlheusser, Gerd, 2023. "Past and Future Developments in the Economics of Relational Contracts," IZA Discussion Papers 16427, Institute of Labor Economics (IZA).
    15. Kiho Yoon, 2021. "Dynamic mechanism design: An elementary introduction," Papers 2106.04850, arXiv.org.
    16. Chifeng Dai, 2021. "Optimal sequential contract with a risk‐averse supplier," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(1), pages 92-125, February.
    17. Robert Dur & Jan Tichem, 2015. "Altruism and Relational Incentives in the Workplace," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 24(3), pages 485-500, September.
    18. David Martimort & Aggey Semenov & Lars Stole, 2017. "A Theory of Contracts with Limited Enforcement," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(2), pages 816-852.
    19. Akerlof, Robert & Ashraf, Anik & Macchiavello, Rocco & Rabbani, Atonu, 2020. "Layoffs and productivity at a Bangladeshi sweater factor," The Warwick Economics Research Paper Series (TWERPS) 1293, University of Warwick, Department of Economics.
    20. Bergman, Mats A. & Johansson, Per & Lundberg, Sofia & Spagnolo, Giancarlo, 2016. "Privatization and quality: Evidence from elderly care in Sweden," Journal of Health Economics, Elsevier, vol. 49(C), pages 109-119.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jemstr:v:25:y:2016:i:4:p:936-957. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.kellogg.northwestern.edu/research/journals/JEMS/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.