Dynamic yardstick mechanisms

• 成果类型: Article
• 署名作者: Faure-Grimaud, A; Reiche, S
• 署名单位: University of London; London School Economics & Political Science; University of London; London School Economics & Political Science; University of Cambridge
• 刊物名称: GAMES AND ECONOMIC BEHAVIOR
• ISSN/ISSBN: 0899-8256
• DOI: 10.1016/j.geb.2005.02.004
• 发表日期: 2006
• 页码: 316-335
• 关键词: correlated mechanisms; yardstick regulation; ratchet effect; short; and long-term contracts; COMMITMENT

摘要

This paper shows that the inability of principals to commit to long-term contracts is irrelevant when dealing with several agents whose private information is correlated. This sharply contrasts with the dynamics of contracting without such correlation. The paper also explores what limitations on yardstick mechanisms can justify the use of long-term contracts. We found that the inability of a principal to commit not to renegotiate long-term contracts is without consequence even if there is a bound on transfers that an agent can be asked to pay. In contrast, short-term contracting fails to implement the commitment solution with constraints on transfers. Second, absent current yardstick, the possibility of using correlated mechanisms in the future allows the principal to implement the first-best with a renegotiation-proof long-term contract whereas this cannot be achieved with short-term contracting. (c) 2005 Elsevier Inc. All rights reserved.