The time structure of self-enforcing agreements

Debraj Ray

    Research output: Contribution to journalArticlepeer-review

    Abstract

    A principal and an agent enter into a sequence of agreements. The principal faces an interim participation constraint at each date, but can commit to the current agreement; in contrast, the agent has the opportunity to renege on the current agreement. We study the time structure of agreement sequences that satisfy participation and no-deviation constraints and are (constrained) efficient. We show that every such sequence must, after a finite number of dates, exhibit a continuation that maximizes the agent's payoff over all such efficient, self-enforcing sequences. Additional results are provided for situations with transferable payoffs.

    Original languageEnglish (US)
    Pages (from-to)547-582
    Number of pages36
    JournalEconometrica
    Volume70
    Issue number2
    DOIs
    StatePublished - 2002

    Keywords

    • Constrained efficiency
    • Contracts
    • Dynamic incentives
    • Limited enforcement
    • Principal-agent theory

    ASJC Scopus subject areas

    • Economics and Econometrics

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