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Halac, Marina. 2012. "Relational Contracts and the Value of Relationships."
,
102(2): 750-79.
Show Article Details
DOI: 10.1257/aer.102.2.750
Abstract:This article 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 promised payments, while if the uninformed agent has the bargaining
power, the principal wants to overstate her outside option to capture more surplus. I characterize how information is revealed, how the relationship evolves, and how this depends on bargaining power. (JEL C78, D82, D83, D86)
Additional links:
Online Appendix
Authors:
Halac, Marina (Columbia U)
JEL Classifications:
C78: Bargaining Theory; Matching Theory
D82: Asymmetric and Private Information
D83: Search; Learning; Information and Knowledge; Communication; Belief
D86: Economics of Contract: Theory
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