Access

You are not currently logged in.

Access your personal account or get JSTOR access through your library or other institution:

login

Log in to your personal account or through your institution.

If you need an accessible version of this item please contact JSTOR User Support

Long-term, Short-term and Renegotiation: On the Value of Commitment in Contracting

Patrick Rey and Bernard Salanie
Econometrica
Vol. 58, No. 3 (May, 1990), pp. 597-619
Published by: The Econometric Society
DOI: 10.2307/2938192
Stable URL: http://www.jstor.org/stable/2938192
Page Count: 23
  • Read Online (Free)
  • Download ($10.00)
  • Subscribe ($19.50)
  • Cite this Item
If you need an accessible version of this item please contact JSTOR User Support
Long-term, Short-term and Renegotiation: On the Value of Commitment in Contracting
Preview not available

Abstract

Long-term relationships are often governed by short-term contracts; this is usually explained by referring to the costs of specifying and enforcing a complete contingent contract. We focus here on the benefits usually associated with long-term commitment, namely the efficiency costs involved when long-term contracts are not available. We prove that renegotiable short-term contracts will implement the long-term optimum in a multi-period principal-agent framework when transfers are not too limited, objectives are conflicting, and there is no relevant asymmetric information at the contracting dates. This last assumption excludes adverse selection models, but not repeated moral hazard models when technologies and preferences are time separable.

Page Thumbnails

  • Thumbnail: Page 
597
    597
  • Thumbnail: Page 
598
    598
  • Thumbnail: Page 
599
    599
  • Thumbnail: Page 
600
    600
  • Thumbnail: Page 
601
    601
  • Thumbnail: Page 
602
    602
  • Thumbnail: Page 
603
    603
  • Thumbnail: Page 
604
    604
  • Thumbnail: Page 
605
    605
  • Thumbnail: Page 
606
    606
  • Thumbnail: Page 
607
    607
  • Thumbnail: Page 
608
    608
  • Thumbnail: Page 
609
    609
  • Thumbnail: Page 
610
    610
  • Thumbnail: Page 
611
    611
  • Thumbnail: Page 
612
    612
  • Thumbnail: Page 
613
    613
  • Thumbnail: Page 
614
    614
  • Thumbnail: Page 
615
    615
  • Thumbnail: Page 
616
    616
  • Thumbnail: Page 
617
    617
  • Thumbnail: Page 
618
    618
  • Thumbnail: Page 
619
    619