Relational Enforcement

Peter Wagner () and Jan Knoepfle ()
Authors registered in the RePEc Author Service: Peter Achim

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: This paper studies a principal who incentivizes an agent to achieve and maintain compliance and voluntarily disclose incidences of non-compliance. Compliance is modeled as a persistent binary process that jumps at random times arriving at a rate that depends on the agent's efforts. The state of compliance is verifiable by the principal only at isolated instances through costly inspections. We show that in principal-optimal equilibria, the principal attains maximum compliance by using deterministic inspections. The optimal equilibrium features periodic inspection cycles which are suspended during periods of self-reported non-compliance, in which the agent is fined. We explain how commitment to random inspections benefits the principal by relaxing the agent's incentive- compatibility constraints, and we discuss possible ways for the principal to overcome her commitment problem through third-party involvement.

Keywords: Relational contracts; compliance; costly inspections; commitment; randomization (search for similar items in EconPapers)
JEL-codes: C73 D82 D83 D86 L51 (search for similar items in EconPapers)
Pages: 51
Date: 2021-04
New Economics Papers: this item is included in nep-cta, nep-hrm and nep-mic
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Citations: View citations in EconPapers (1)

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Journal Article: Relational enforcement (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2021_295

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