The Multiperiod Principal-Agent Problem.

Journal article

In repeated principal-agent models, long-term contracts can improve on short-term contracts only if they commit either the principal or agent to a payoff in some future circumstances lower than could be obtained from a short-term contract negotiated if that circumstance occurs. The authors show that efficient contracting under moral hazard alone does not require long-term commitment from that principal. Provided a short-term contract can punish the agent sufficiently (in a sense made precise), it requires no commitment from the agent either. Then linking payoffs in one period to outcomes in previous periods does not improve the trade-off between incentives and risk sharing.

Authors: Malcomson, J; Spinnewyn, F

• Journal: Review of Economic Studies
• Volume: 55
• Publication date: 1988-01-01
• ISSN: 0034-6527
• Language: English