Theoretical Foundations of Relational Incentive Contracts

Joel Watson

Annual Review of Economics, 2021, vol. 13, issue 1, 631-659

Abstract: This article describes the emerging game-theoretic framework for modeling long-term contractual relationships with moral hazard. The framework combines self-enforcement and external enforcement, accommodating alternative assumptions regarding how actively the parties initially set and renegotiate the terms of their contract. A progression of theoretical components is reviewed, building from the recursive formulation of equilibrium continuation values in repeated games. A principal-agent setting serves as a running example.

Keywords: relational contracts; enforcement; game theory; negotiation (search for similar items in EconPapers)
JEL-codes: C6 C7 D7 D86 E20 E30 F5 L14 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (3)

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Working Paper: Theoretical Foundations of Relational Incentive Contracts (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:anr:reveco:v:13:y:2021:p:631-659

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DOI: 10.1146/annurev-economics-090820-110736

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