Game-Playing Agents: Unobservable Contracts as Precommitments

Michael Katz ()

RAND Journal of Economics, 1991, vol. 22, issue 3, 307-328

Abstract: The players in most economically important games are agents, not principals. This raises the possibility of the principal's setting a strategic compensation scheme. The central question addressed here is whether unobservable agency contracts can serve as precommitments. I argue that, in terms of Nash equilibrium outcomes, the answer is no when it is common knowledge that there exists a contract that "solves" the standard agency problems and that the principal and agent have the same preferences over income and effort. However, I also show that when these conditions are not satisfied (as they typically will not be), provisions of the agency contract enacted solely to deal with incentive and risk sharing problems of the agency relationship may have the secondary effect of credibly precommitting the agent in the game he plays with other agents. I also briefly consider the effects of contract renegotiation.

Date: 1991
References: Add references at CitEc
Citations: View citations in EconPapers (225)

Downloads: (external link)
http://links.jstor.org/sici?sici=0741-6261%2819912 ... O%3B2-Q&origin=repec full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

Related works:
Working Paper: Game-Playing Agents: Unobservable Contracts as Precommitments (1991)
Working Paper: Game-Playing Agents: Unobservable Contracts as Precommitments (1991)
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:rje:randje:v:22:y:1991:i:autumn:p:307-328

Ordering information: This journal article can be ordered from
https://editorialexp ... i-bin/rje_online.cgi

Access Statistics for this article

More articles in RAND Journal of Economics from The RAND Corporation
Bibliographic data for series maintained by ().