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Relational Contracts: Reputation and Renegotiation

Author

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  • David G. Pearce
  • Ennio Stacchetti

Abstract

This paper outlines some thoughts on relational contracts. Such a contract can involve an implicit agreement to behave in certain ways, that includes the use of explicit, legally enforceable contracts, which may be rewritten as play proceeds. The use of implicit contracts involves a series of challenges not encountered with a legal contract that irrevocably specifies all contingent behavior. What agreements are credible? What threatened punishments will withstand efforts to renegotiate? To what extent can a long-run player establish a reputation for a particular kind of behavior? Can information design and Bayesian persuasion usefully be viewed through this lens?

Suggested Citation

  • David G. Pearce & Ennio Stacchetti, 2023. "Relational Contracts: Reputation and Renegotiation," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 179(3-4), pages 562-578.
    • Handle: RePEc:mhr:jinste:urn:doi:10.1628/jite-2023-0043
    DOI: 10.1628/jite-2023-0043
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    More about this item

    Keywords

    relational contracts; repeated games; implicit contracts; reputation; renegotiation; relationalcontracts; repeatedgames; implicitcontracts;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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