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Learning and Incentive Problems in Repeated Partnerships

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  • Hirao, Yukiko

Abstract

This paper analyzes optimal contracts for financing risky new projects in a two-period agency model. The principal and t he agent both learn about the project quality, and the agent's unobservable actions affect the learning process. The parties have access to the credit market. Compared to the short-term contracts, the long-term contract induces the agent to work harder (less hard) in period one if his marginal effort in the first period increases (reduces) the value of information. In both cases, the long-term contract enables the parties to learn more about the project type. Copyright 1993 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Hirao, Yukiko, 1993. "Learning and Incentive Problems in Repeated Partnerships," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(1), pages 101-119, February.
  • Handle: RePEc:ier:iecrev:v:34:y:1993:i:1:p:101-19
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    References listed on IDEAS

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    1. Alan L. Gustman & Thomas L. Steinmeier, 1984. "Partial Retirement and the Analysis of Retirement Behavior," ILR Review, Cornell University, ILR School, vol. 37(3), pages 403-415, April.
    2. Lundberg, Shelly J, 1985. "Tied Wage-Hours Offers and the Endogeneity of Wages," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 405-410, August.
    3. Moffitt, Robert, 1982. "The Tobit Model, Hours of Work and Institutional Constraints," The Review of Economics and Statistics, MIT Press, vol. 64(3), pages 510-515, August.
    4. Rosen, Harvey S, 1976. "Taxes in a Labor Supply Model with Joint Wage-Hours Determination," Econometrica, Econometric Society, vol. 44(3), pages 485-507, May.
    5. Deaton, Angus & Meullbauer, John, 1981. "Functional Forms for Labor Supply and Commodity Demands with and without Quantity Restrictions," Econometrica, Econometric Society, vol. 49(6), pages 1521-1532, November.
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    Cited by:

    1. Terstiege, Stefan, 2013. "Objective versus Subjective Performance Evaluations," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 430, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    2. repec:clh:resear:v:2:y:2009:i:5 is not listed on IDEAS
    3. Terstiege, Stefan, 2014. "Private versus verifiable interim performance evaluations under uncertainty," Economics Letters, Elsevier, vol. 123(3), pages 341-344.
    4. Amit, Raphael & Brander, James & Zott, Christoph, 1998. "Why do venture capital firms exist? theory and canadian evidence," Journal of Business Venturing, Elsevier, vol. 13(6), pages 441-466, November.
    5. Ouidad Yousfi, 2009. "Leveraged Buy Out: Dynamic agency model with write-off option," EconomiX Working Papers 2009-13, University of Paris Nanterre, EconomiX.
    6. Susanne Ohlendorf & Patrick W. Schmitz, 2012. "Repeated Moral Hazard And Contracts With Memory: The Case Of Risk‚ÄźNeutrality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(2), pages 433-452, May.
    7. Ohlendorf, Susanne & Schmitz, Patrick W, 2008. "Repeated Moral Hazard, Limited Liability, and Renegotiation," CEPR Discussion Papers 6725, C.E.P.R. Discussion Papers.
    8. Ouidad Yousfi, 2012. "Financial Capital Structure in LBO Project Under Asymmetric Information," Post-Print hal-00813878, HAL.
    9. Ronald A. Dye, 2004. "Strategy Selection and Performance Measurement Choice When Profit Drivers Are Uncertain," Management Science, INFORMS, vol. 50(12), pages 1624-1637, December.

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