Dynamic Relational Contracts with Consumption Constraints

Jonathan P Thomas, Tim S Worrall

Research output: Working paper

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Abstract

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
Number of pages30
Publication statusPublished - Dec 2007

Publication series

NameKeele Economics Research Papers

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