Dynamic Relational Contracts with Consumption Constraints
This paper considers a long-term relationship between two agents who undertake costly actions or investments which produce a joint benefit. Agents have an opportunity to expropriate some of the joint benefit for their own use. The question asked is how to structure the investments and division of the surplus over time so as to avoid expropriation. It is shown that investments may be either above or below the efficient level and that actions and the division of the surplus converges to a stationary solution at which either both investment levels are efficient or both are below the efficient level.
|Date of creation:||Dec 2007|
|Date of revision:|
|Note:||The authors gratefully acknowledge the financial support of the Economic and Social Research Council (Research Grant: RES-000-23-0865). We also thank in particular Pierre Dubois and Francisco Gonzalez for helpful comments. An earlier version of this paper had the title "Self-enforcing contracts with action dynamics".|
|Contact details of provider:|| Postal: Department of Economics, University of Keele, Keele, Staffordshire, ST5 5BG - United Kingdom|
Phone: +44 (0)1782 584581
Fax: +44 (0)1782 717577
Web page: http://www.keele.ac.uk/depts/ec/cer/
More information through EDIRC
|Order Information:|| Postal: Centre for Economic Research, Research Institute for Public Policy and Management, Keele University, Staffordshire ST5 5BG - United Kingdom|
Web: http://www.keele.ac.uk/depts/ec/cer/pubs_kerps.htm Email:
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.:
- Christian Sigouin, 2003. "Investment Decisions, Financial Flows, and Self-Enforcing Contracts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(4), pages 1359-1382, November.
- MacLeod, W Bentley & Malcomson, James M, 1989.
"Implicit Contracts, Incentive Compatibility, and Involuntary Unemployment,"
Econometric Society, vol. 57(2), pages 447-80, March.
- W. Bentley MacLeod & James M. Malcomson, 1986. "Implicit Contracts, Incentive Compatibility, and Involuntary Unemployment," Working Papers 585, Queen's University, Department of Economics.
- Rui Albuquerque & Hugo A. Hopenhayn, 2004. "Optimal Lending Contracts and Firm Dynamics," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 285-315.
- Maija Halonen, 2002. "Reputation And The Allocation Of Ownership," Economic Journal, Royal Economic Society, vol. 112(481), pages 539-558, July.
- Narayana Kocherlakota, 2010.
"Implications of Efficient Risk Sharing Without Commitment,"
Levine's Working Paper Archive
2053, David K. Levine.
- Narayana R. Kocherlakota, 1996. "Implications of Efficient Risk Sharing without Commitment," Review of Economic Studies, Oxford University Press, vol. 63(4), pages 595-609.
- Luis Rayo, 2007. "Relational Incentives and Moral Hazard in Teams," Review of Economic Studies, Oxford University Press, vol. 74(3), pages 937-963.
- Katherine Doornik, 2006. "Relational Contracting in Partnerships," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(2), pages 517-548, 06.
- Jonathan Levin, 2000.
"Relational Incentive Contracts,"
01002, Stanford University, Department of Economics.
- Ethan Ligon & Jonathan P. Thomas & Tim Worrall, 2002. "Informal Insurance Arrangements with Limited Commitment: Theory and Evidence from Village Economies," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 209-244.
- Garvey, Gerald T., 1995. "Why reputation favors joint ventures over vertical and horizontal integration A simple model," Journal of Economic Behavior & Organization, Elsevier, vol. 28(3), pages 387-397, December.
- Jonathan Thomas & Tim Worrall, 1988. "Self-Enforcing Wage Contracts," Review of Economic Studies, Oxford University Press, vol. 55(4), pages 541-554.
- Debraj Ray, 2002. "The Time Structure of Self-Enforcing Agreements," Econometrica, Econometric Society, vol. 70(2), pages 547-582, March.
When requesting a correction, please mention this item's handle: RePEc:kee:kerpuk:2007/16. 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: (Martin E. Diedrich)
If references are entirely missing, you can add them using this form.