Self-evident events and the value of linking

Jimmy Chan and Wenzhang Zhang

Journal of Economic Theory, 2023, vol. 212, issue C

Abstract: We study a T-period contracting game between a group of players without access to external financing. We show that the long-term efficiency loss is bounded from below by the need to vary incentives across self-evident events. When T is large, the efficiency bound can be approached by a contract that involves side payments between players. Our results apply to all monitoring structures and strategy profiles. They encompass the inefficiency result in Abreu et al. (1991), as well as the approximate-efficiency results in Compte (1998), Obara (2009), and Chan and Zhang (2016).

Keywords: Repeated partnerships; Value of linking; Self-evident events; Repeated games; General monitoring (search for similar items in EconPapers)
JEL-codes: C73 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:212:y:2023:i:c:s002205312300087x

DOI: 10.1016/j.jet.2023.105691

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