Relational Incentive Contracts with Persistent Private Information

No 633, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: This paper investigates relational incentive contracts with a continuum of privately observedagent types that are persistent over time. For a sufficiently productive relationship,a pooling contract exists in which all agent types continuing the relationshipchoose the same action. Necessary and sufficient conditions are given for some separationto be feasible; the parties can then do better than with full pooling. When futureactions are optimal, however, separation of all types is not possible; the finest separationachievable is into partitions each containing a non-degenerate interval of types.Separation always involves lower output initially than after separation has occurred.

Keywords: Relational incentive contracts; private information; ratchet effect; dynamic enforcement (search for similar items in EconPapers)
JEL-codes: C73 D82 D86 (search for similar items in EconPapers)
Date: 2012-12-04
New Economics Papers: this item is included in nep-cta, nep-gth, nep-hrm and nep-mic
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Citations: View citations in EconPapers (14)

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Related works:
Journal Article: Relational Incentive Contracts With Persistent Private Information (2016)
Working Paper: Relational Incentive Contracts with Persistent Private Information (2015)
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