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Role of Information Rents in Relational Contracts

Posted: 17 Oct 2012 Last revised: 26 Aug 2015

See all articles by Akifumi Ishihara

Akifumi Ishihara

University of Tokyo - Institute of Social Science

Date Written: August 26, 2015

Abstract

We study a repeated contracting model in which the agent has private information and the performance measure is unverifiable. In an optimal stationary contract, when the discount factor is not high, the principal’s objective shifts from purely reducing the information rent toward increasing the total surplus to sustain the relational contract. As a result, the total surplus is not monotonically increasing in the discount factor and could decrease when the unverifiable performance measure becomes verifiable.

Keywords: Relational Contract, Information Rent, Unverifiability

JEL Classification: D86, D82, L14

Suggested Citation

Ishihara, Akifumi, Role of Information Rents in Relational Contracts (August 26, 2015). Available at SSRN: https://ssrn.com/abstract=2162732 or http://dx.doi.org/10.2139/ssrn.2162732

Akifumi Ishihara (Contact Author)

University of Tokyo - Institute of Social Science

Hongo 7-3-1
Bunkyo
Tokyo, TOKYO 113-0033
Japan

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