Citation

Discussion Paper Details

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Title: Relational contracts when the agent's productivity inside the relationship is correlated with outside opportunities

Author(s): Alexander F Wagner

Publication Date: May 2011

Keyword(s): Relational contracts and Repeated games

Programme Area(s): Financial Economics

Abstract: An agent can choose to forego benefits from side opportunities and to instead provide benefits to the principal. In return, the principal offers rewards. If this exchange is not contractible, typically repeated interaction will be required to sustain it. This model allows the agent's productivity in contractible and possibly also non-contractible actions inside the relationship to be correlated with productivity in side activities. This arguably realistic assumption yields several novel implications for the feasibility of relational contracts and for agent selection by principals. The analysis reveals, for example, that optimal agent productivity is often non-monotonic in the importance, to the principal, of ensuring agent reliability.

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Bibliographic Reference

Wagner, A. 2011. 'Relational contracts when the agent's productivity inside the relationship is correlated with outside opportunities'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8378