Optimal stationary contract with two-sided imperfect enforcement and persistent adverse selection

C-Tier
Journal: Economics Letters
Year: 2017
Volume: 159
Issue: C
Pages: 18-22

Score contribution per author:

0.335 = (α=2.01 / 3 authors) × 0.5x C-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

We consider an infinitely-repeated principal–agent relationship run with stationary contracts. The agent has private information on his persistent cost parameter and, under limited enforcement, both parties can breach the contract. The optimal stationary contract with limited enforcement is made of two distinct pieces. For the most efficient types of the agent, the contract entails bunching with a fixed payment and a fixed output. For less efficient types, the contract exhibits downward output distortions below the Baron–Myerson level that would have been achieved had enforcement been costless.

Technical Details

RePEc Handle
repec:eee:ecolet:v:159:y:2017:i:c:p:18-22
Journal Field
General
Author Count
3
Added to Database
2026-01-25