The multiperiod principal-agent problem
In repeated principal-agent models, long-term contracts can improve on short-term contracts only if they commit ei ther the principal or agent to a payoff in some future circumstances lower than could be obtained from a short-term contract negotiated if that circumstance occurs. The authors show that efficient contractin g under moral hazard alone does not require long-term commitment from that principal. Provided a short-term contract can punish the agent sufficiently (in a sense made precise), it requires no commitment fro m the agent either. Then linking payoffs in one period to outcomes in previous periods does not improve the trade-off between incentives a nd risk sharing. Copyright 1988 by The Review of Economic Studies Limited.
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|Note:||In : Review of Economic Studies, 55, 391-408, 1988|
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