The Principal-Agent Relationship with an Informed Principal, II: Common Values

Econometrica ◽  
1992 ◽  
Vol 60 (1) ◽  
pp. 1 ◽  
Author(s):  
Eric Maskin ◽  
Jean Tirole
Keyword(s):  
Principal Agent ◽  
Informed Principal ◽  
Common Values ◽  
Principal Agent Relationship

scholarly journals Endogenous Verifiability and Relational Contracting

2009 ◽  
Vol 99 (5) ◽  
pp. 2193-2208 ◽  
Author(s):  
Ola Kvaløy ◽  
Trond E. Olsen
Keyword(s):  
Principal Agent ◽  
Relational Contracting ◽  
Strong Assumption ◽  
Repeated Interaction ◽  
Ex Ante ◽  
Contractual Incompleteness ◽  
The Relationship ◽  
Principal Agent Relationship

Principal-agent models usually invoke the strong assumption that the parties know for sure ex ante whether a variable is verifiable or not. This paper assumes that only the probability of verification is known, and that this probability is endogenously determined. We analyze a principal-agent relationship where the verifiability of the agent's output is determined by the principal's investment in drafting an explicit contract. The model is well suited for analyzing the relationship between explicit contracting, legal courts, trust, and relational contracting. In particular, we show how trust—established through repeated interaction—and legal courts may induce contractual incompleteness. (JEL D82, D86)

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