Relational enforcement

Peter Achim and Jan Knoepfle ()
Additional contact information
Jan Knoepfle: School of Economics and Finance, Queen Mary University of London

Theoretical Economics, 2024, vol. 19, issue 2

Abstract: A principal incentivizes an agent to maintain compliance and to truthfully announce any breaches of compliance. Compliance is imperfectly controlled by the agent’s private effort choices, is partially persistent, and is verifiable by the principal only through costly inspections. We show that in principal-optimal equilibria, the principal enforces maximum compliance using deterministic inspections. Periodic inspection cycles are suspended during periods of self-reported noncompliance, during which the agent is fined. We show how commitment to random inspections would benefit the principal, and discuss possible ways for the principal to overcome her commitment problem.

Keywords: Relational contracts; Dynamic enforcement; Persistence; Costly inspections (search for similar items in EconPapers)
JEL-codes: C73 D83 (search for similar items in EconPapers)
Date: 2024-05-13
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://econtheory.org/ojs/index.php/te/article/viewFile/20240823/39129/1203 (application/pdf)

Related works:
Working Paper: Relational Enforcement (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:the:publsh:5183

Access Statistics for this article

Theoretical Economics is currently edited by Simon Board, Todd D. Sarver, Juuso Toikka, Rakesh Vohra, Pierre-Olivier Weill

More articles in Theoretical Economics from Econometric Society
Bibliographic data for series maintained by Martin J. Osborne ().