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.
|Date of creation:||Oct 2013|
|Date of revision:|
|Contact details of provider:|| Postal: Zürichbergstrasse 18, ZUE, CH-8092 Zürich|
Phone: +41 44 632 03 87
Fax: +41 44 632 13 62
Web page: http://www.cer.ethz.ch
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hans Gersbach & Verena Liessem, 2008.
"Reelection threshold contracts in politics,"
Social Choice and Welfare,
Springer, vol. 31(2), pages 233-255, August.
- Gersbach, Hans, 2008.
CEPR Discussion Papers
6763, C.E.P.R. Discussion Papers.
- Mathias Dewatripont & Patrick Bolton, 2005.
ULB Institutional Repository
2013/9543, ULB -- Universite Libre de Bruxelles.
- John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
When requesting a correction, please mention this item's handle: RePEc:eth:wpswif:13-182. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.