The Time Structure of Self-Enforcing Agreements

Debraj Ray

Econometrica, 2002, vol. 70, issue 2, 547-582

Abstract: A principal and an agent enter into a sequence of agreements. The principal faces an interim participation constraint at each date, but can commit to the current agreement; in contrast, the agent has the opportunity to renege on the current agreement. We study the time structure of agreement sequences that satisfy participation and no-deviation constraints and are (constrained) efficient. We show that every such sequence must, after a finite number of dates, exhibit a continuation that maximizes the "agent's" payoff over all such efficient, self-enforcing sequences. Additional results are provided for situations with transferable payoffs. Copyright The Econometric Society 2002.

Date: 2002
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