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Contribution Details

Type Working Paper
Scope Discipline-based scholarship
Title Relational Contracts When the Agent' s Productivity Inside the Relationship is Correlated with Outside Opportunities
Organization Unit
  • Alexander Wagner
  • English
Institution University of Zurich
Series Name CEPR Discussion Papers
Number DP8378
Date 2011
Abstract Text An agent can choose to forego bene ts from side opportunities and to instead provide bene ts to the principal. In return, the principal o¤ers rewards. If this exchange is not contractible, typically repeated interaction will be required to sustain it. This model allows the agents productivity in contractible and possibly also non-contractible actions inside the relationship to be correlated with productivity in side activities. This arguably realistic assumption yields several novel implications for the feasibility of relational contracts and for agent selection by principals. The analysis reveals, for example, that optimal agent productivity is often non-monotonic in the importance, to the principal, of ensuring agent reliability.
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