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Reciprocal Agency

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  • Seonghoon Jeon

Abstract

I analyze a simple model of reciprocal agency, in which two persons play interchanging roles of agent and principal, and show that optimal contracts can provide more incentives in reciprocal relationships than in unilateral relationships. Moreover, in the sequential setup, there exists a "reverse" ratchet effect; the first-period agent exerts more effort in order to make the next-period agent infer more favorable environments, and to make him demand less wages. I apply the model to the Japanese main-bank system and cross-shareholding.

Suggested Citation

  • Seonghoon Jeon, 2001. "Reciprocal Agency," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 157(2), pages 246-264, June.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200106)157:2_246:ra_2.0.tx_2-6
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    References listed on IDEAS

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    1. Ching-To Albert Ma, 1994. "Renegotiation and Optimality in Agency Contracts," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(1), pages 109-129.
    2. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(3), pages 393-414.
    3. Meyer, Margaret A., 1995. "Cooperation and competition in organizations: A dynamic perspective," European Economic Review, Elsevier, vol. 39(3-4), pages 709-722, April.
    4. Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-328, March.
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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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