Stationarity of the Optimal Enforcement Contract in the Complete Information Case

Aggey Simons ()
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Aggey Simons: Department of Economics, University of Ottawa, Canada

No 2501E, Working Papers from University of Ottawa, Department of Economics

Abstract: This paper examines the stationarity of optimal contracts in infinitely repeated principal–agent relationships under complete information and enforcement constraints. We demonstrate that stationarity emerges as a robust feature of optimal contracts when agent types and actions are fully observable, and contract enforcement is supported by both public remedies and private termination threats. Under complete information, the trade-offs between enforcement costs and relational value become significantly simplified, resulting in stationary outcomes even when enforcement constraints are binding. These findings offer insights into contract design in environments where non-stationary profiles are either impractical or prohibitively costly.

Keywords: dynamic contracts; contract enforcement; stationarity; complete information. (search for similar items in EconPapers)
JEL-codes: D82 D86 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2025
New Economics Papers: this item is included in nep-gth and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:ott:wpaper:2501e

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