A Theory of Threshold Contracts
We consider an in nitely repeated reappointment game in a principal- agent relationship. Typical examples are voter-politician or government- public servant relationships. The agent chooses costly effort and enjoys being in office until he is deselected. The principal observes a noisy signal of the agent's effort and decides whether to reappoint the agent or not. We analyse the stationary Markovian equilibria of this game and examine the consequences of threshold contracts, which forbid reappointment if the principal's utility is too low. We identify the circumstances under which such threshold contracts are welfare-improving or beneficial for the principal.
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- Gersbach, Hans & Liessem, Verena, 2005.
"Re-election Threshold Contracts in Politics,"
CEPR Discussion Papers
5175, C.E.P.R. Discussion Papers.
- Mathias Dewatripont & Patrick Bolton, 2005.
ULB Institutional Repository
2013/9543, ULB -- Universite Libre de Bruxelles.
- Gersbach Hans, 2012.
Review of Law & Economics,
De Gruyter, vol. 8(3), pages 823-851, December.
- John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
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