Dynamic Relational Contracts with Credit Constraints

Research output: Working paperDiscussion paper

Abstract / Description of output

This paper considers a long-term relationship between two agents who undertake costly actions or investments which produce a joint benefit. Agents have an opportunity to expropriate some of the joint benefit for their own use. The question asked is how to structure the investments and division of the surplus over time so as to avoid expropriation. It is shown that investments may be either above or below the efficient level and that actions and the division of the surplus converges to a stationary solution at which either both investment levels are efficient or both are below the efficient level.
Original languageEnglish
PublisherThe University of Manchester Economics Discussion Paper Series
Pages1-52
Number of pages52
Volume1009
Publication statusPublished - Apr 2010

Keywords / Materials (for Non-textual outputs)

  • Credit constraints
  • Limited commitment
  • Relational contracts
  • Self- enforcing contract
  • C61
  • C73
  • D86
  • D91
  • L14

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