The Social Equilibrium of Relational Arrangements

Parikshit Ghoshr, Debraj Ray

    Research output: Contribution to journalArticlepeer-review


    The enforcement of relational contracts is especially challenging for anonymous environments in which new partnerships can be started after a transgression. Building on Ghosh and Ray (1996), we study bilateral partnership norms that exhibit gradually increasing cooperation, thereby deterring deviations. But such gradualism must be incentive-compatible for partners. We argue that incomplete information regarding partner patience solves this problem even though it further exacerbates the overall lack of information. Socially beneficial gradualism now becomes bilaterally desirable. We also study a version of our problem with one-sided moral hazard, and discuss analytical approaches to environments with richer gradations of incomplete information.

    Original languageEnglish (US)
    Pages (from-to)579-615
    Number of pages37
    JournalJournal of Institutional and Theoretical Economics
    Issue number3-4
    StatePublished - Dec 2023


    • dynamic games
    • gradualism
    • relational contracts
    • social norms
    • trust-building

    ASJC Scopus subject areas

    • Economics and Econometrics


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