15.11. BGSE Micro Workshop: Nicolas Klein
BGSE Micro Workshop with Nicolas Klein (University of Montreal)
| Event details | |
|---|---|
| What |
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| When |
Nov 15, 2017 from 12:00 to 13:00 |
| Where | room 0.017 |
| Contact Name | Stephan Lauermann |
| Contact Email | s.lauermann@uni-bonn.de |
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Topic
Relational Contracts with Private Information on the Future Value of the Relationship: The Upside of Implicit Downsizing Costs
Abstract
We analyze a relational contracting problem, in which the principal has private information
about the future value of the relationship. In order to reduce bonus payments, the principal is
tempted to claim that the value of the future relationship is lower than it actually is. To induce
truth-telling, the optimal relational contract may introduce distortions after a bad report. For
some levels of the discount factor, output is reduced by more than would be sequentially
optimal. This distortion is attenuated over time even if prospects remain bad. Our model thus
provides an alternative explanation for indirect short-run costs of downsizing.
Paper: Download
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BGSE Workshop
