Dynamic Relational Contracts with Credit Constraints

This paper considers a long-term relationship between two agents who undertake costly actions or investments which produce a joint benefit. Agents have an opportunity to expropriate some of the joint benefit for their own use. The question asked is how to structure the investments and division of the surplus over time so as to avoid expropriation. It is shown that investments may be either above or below the efficient level and that actions and the division of the surplus converges to a stationary solution at which either both investment levels are efficient or both are below the efficient level.

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Year of publication:	2010-04
Authors:	Thomas, Jonathan ; Worrall, Tim
Institutions:	School of Economics, University of Manchester
Subject:	Consumption constraints \| limited commitment \| relational contracts \| self-enforcement

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Extent:	application/pdf
Series:	The School of Economics Discussion Paper Series.
Type of publication:	Book / Working Paper
Notes:	We gratefully acknowledge the financial support of the Economic and Social Research Council (Research Grant: RES-000-23-0865). We also thank in particular Pierre Dubois, Francisco Gonzalez, Bruno Jullien and John Moore for helpful comments. An earlier version of this paper had the title ``Self-enforcing contracts with action dynamics''. The second author gratefully acknowledges the support of the Hallsworth Research Fellowship Fund at the University of Manchester. The text is part of a series Economics, The University of Manchester, The School of Economics Discussion Paper Series Number 1009 45 pages
Classification:	C61 - Optimization Techniques; Programming Models; Dynamic Analysis ; C73 - Stochastic and Dynamic Games ; D86 - Economics of Contract: Theory ; D91 - Intertemporal Consumer Choice; Life Cycle Models and Saving ; L14 - Transactional Relationships; Contracts and Reputation; Networks
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10008465104