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Relational Incentive Contracts with Persistent Private Information

  • James Malcomson

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.

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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 633.

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Date of creation: 04 Dec 2012
Date of revision:
Handle: RePEc:oxf:wpaper:633
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  1. Susan Athey & Kyle Bagwell, 2008. "Collusion With Persistent Cost Shocks," Econometrica, Econometric Society, vol. 76(3), pages 493-540, 05.
  2. MacLeod, W Bentley & Malcomson, James M, 1989. "Implicit Contracts, Incentive Compatibility, and Involuntary Unemployment," Econometrica, Econometric Society, vol. 57(2), pages 447-80, March.
  3. Watson, Joel, 1999. "Starting Small and Commitment," University of California at San Diego, Economics Working Paper Series qt37p340fc, Department of Economics, UC San Diego.
  4. Laffont, Jean-Jacques & Tirole, Jean, 1988. "The Dynamics of Incentive Contracts," Econometrica, Econometric Society, vol. 56(5), pages 1153-75, September.
  5. Asanuma, Banri, 1989. "Manufacturer-supplier relationships in Japan and the concept of relation-specific skill," Journal of the Japanese and International Economies, Elsevier, vol. 3(1), pages 1-30, March.
  6. Kennan, J., 1997. "Repeated Bargaining with Persistent Private Information," Working papers 9708, Wisconsin Madison - Social Systems.
  7. Joseph Farrell and Eric Maskin., 1987. "Renegotiation in Repeated Games," Economics Working Papers 8759, University of California at Berkeley.
  8. Bentley MacLeod & James M. Malcomson, 1985. "Reputation and Hierarchy in Dynamic Models of Employment," Working Papers 628, Queen's University, Department of Economics.
  9. Mailath, George J. & Samuelson, Larry, 2006. "Repeated Games and Reputations: Long-Run Relationships," OUP Catalogue, Oxford University Press, number 9780195300796.
  10. Marco Battaglini, 2005. "Long-Term Contracting with Markovian Consumers," American Economic Review, American Economic Association, vol. 95(3), pages 637-658, June.
  11. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  12. Bentley W. MacLeod, 2003. "Optimal Contracting with Subjective Evaluation," American Economic Review, American Economic Association, vol. 93(1), pages 216-240, March.
  13. Watson, Joel, 1999. "Starting Small and Renegotiation," Journal of Economic Theory, Elsevier, vol. 85(1), pages 52-90, March.
  14. Jonathan Levin, 2000. "Relational Incentive Contracts," Working Papers 01002, Stanford University, Department of Economics.
  15. Goldlücke, Susanne & Kranz, Sebastian, 2013. "Renegotiation-proof relational contracts," Games and Economic Behavior, Elsevier, vol. 80(C), pages 157-178.
  16. Ching-jen Sun, 2008. "A Note on the Dynamics of Incentive Contracts," Economics Series 2008_23, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
  17. Abreu, Dilip, 1988. "On the Theory of Infinitely Repeated Games with Discounting," Econometrica, Econometric Society, vol. 56(2), pages 383-96, March.
  18. Huanxing Yang, 2013. "Nonstationary Relational Contracts With Adverse Selection," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(2), pages 525-547, 05.
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