 Relational Incentive Contracts With Persistent Private InformationEconometrica, 2016, vol. 84, 317-346 Abstract: This paper investigates relational incentive contracts with continuous, privately observed agent types that are persistent over time. With fixed agent types, full separation is not possible when continuation equilibrium payoffs following revelation are on the Pareto frontier of attainable payoffs. This result is related to the ratchet effect in that: (1) a type imitating a less productive type receives an information rent, and (2) with full separation, one imitating a more productive type receives the same future payoff as that more productive type. However, the reason for (2) is fundamentally different than with the ratchet effect. It arises from the dynamic enforcement requirement in relational contracts, not from the principal having all the bargaining power, and applies whatever the distribution between principal and agent of the future gains from the relationship (i.e., whatever the point on the Pareto frontier). This result extends to sufficiently persistent types under certain conditions. Date: 2016 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:wly:emetrp:v:84:y:2016:i::p:317-346 Ordering information: This journal article can be ordered from Access Statistics for this article Econometrica is currently edited by Guido W. Imbens More articles in Econometrica from Econometric Society Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.