Relational Contracts and the Value of Loyalty
نویسندگان
چکیده
منابع مشابه
Relational Contracts and the Value of Loyalty
This paper examines how relational contracting affects the pattern of trade across the economy. We suppose a firm (principal) repeatedly chooses among of a set of potential trading partners (agents) under the threat of holdup. The possibility of ex–post opportunism allows agents to collect rents, which act like a fixed cost that the principal must pay when initiating a new relationship. The pri...
متن کاملRelational Contracts and the Value of Loyalty
3349 Firms routinely rely on the goodwill of their trading partners. In developed economies, ongoing relationships complement formal contracts in mitigating holdup and facilitating transactions (Stewart Macaulay 1963). In developing economies, where contracts enjoy little legal protection, long-term relationships are even more critical for trade (John McMillan and Christopher Woodruff 1999). Th...
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This paper studies optimal relational contracts when the value of the relationship between contracting parties is not commonly known. I consider a principal-agent setting where the principal has persistent private information about her outside option. I show that if the principal has the bargaining power, she wants to understate her outside option to provide strong incentives and then renege on...
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We investigate the use of information in repeated principal-agent game and report three results. First, consistent with Kandori (1992), garbling signals within each period hurts the e¢ ciency of the game. Second, contrary to Abreu, Milgrom, and Pearce (1991), bundling signals across periods and then fully revealing them never increases the e¢ ciency of the game. Third, and most importantly, we ...
متن کاملFormal Contracts, Relational Contracts, and the Threat-Point Effect
Can formal contracts help resolving the holdup problem? We address this important question by studying the holdup problem in repeated transactions between a seller and a buyer in which the seller can make relation-specific investments in each period. In contrast to previous findings, we demonstrate that writing a simple fixed-price contract based on product delivery is of value even when relati...
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ژورنال
عنوان ژورنال: American Economic Review
سال: 2011
ISSN: 0002-8282
DOI: 10.1257/aer.101.7.3349