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Relational Incentive Contracts with Persistent Private Information

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  • James Malcomson

Abstract

This paper investigates relational incentive contracts with a continuum of privately observedagent types that are persistent over time. For a sufficiently productive relationship,a pooling contract exists in which all agent types continuing the relationshipchoose the same action. Necessary and sufficient conditions are given for some separationto be feasible; the parties can then do better than with full pooling. When futureactions are optimal, however, separation of all types is not possible; the finest separationachievable is into partitions each containing a non-degenerate interval of types.Separation always involves lower output initially than after separation has occurred.

Suggested Citation

  • James Malcomson, 2012. "Relational Incentive Contracts with Persistent Private Information," Economics Series Working Papers 633, University of Oxford, Department of Economics.
  • Handle: RePEc:oxf:wpaper:633
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    File URL: http://www.economics.ox.ac.uk/materials/papers/12468/paper633.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Matthias Fahn & Nicolas Klein, 2017. "Relational Contracts with Private Information on the Future Value of the Relationship: The Upside of Implicit Downsizing Costs," Economics working papers 2017-14, Department of Economics, Johannes Kepler University Linz, Austria.
    2. Bergman, Mats A. & Johansson, Per & Lundberg, Sofia & Spagnolo, Giancarlo, 2016. "Privatization and quality: Evidence from elderly care in Sweden," Journal of Health Economics, Elsevier, pages 109-119.
    3. David Martimort & Aggey Semenov & Lars Stole, 2013. "A Theory of Contracts with Limited Enforcement," Working Papers E1304E, University of Ottawa, Department of Economics.
    4. repec:oup:restud:v:84:y:2017:i:2:p:816-852. is not listed on IDEAS
    5. Holger Herz & Armin Schmutzler & André Volk, 2016. "Cooperation and Mistrust in Relational Contracts," ECON - Working Papers 233, Department of Economics - University of Zurich.
    6. David Martimort & Aggey Semenov & Lars Stole, 2017. "A Theory of Contracts with Limited Enforcement," Review of Economic Studies, Oxford University Press, vol. 84(2), pages 816-852.
    7. Matthias Fahn & Nicolas Klein, 2017. "Relational Contracts with Private Information on the Future Value of the Relationship: The Upside of Implicit Downsizing Costs," CESifo Working Paper Series 6590, CESifo Group Munich.
    8. Schmutzler, Armin & Holger, Herz & André, Volk, 2014. "Honesty and Relational Contracts," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100363, Verein für Socialpolitik / German Economic Association.

    More about this item

    Keywords

    Relational incentive contracts; private information; ratchet effect; dynamic enforcement;

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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