IDEAS home Printed from https://ideas.repec.org/a/bpj/bejtec/v10y2010i1n33.html
   My bibliography  Save this article

A Theory of Credibility under Commitment

Author

Listed:
  • Monte Daniel

    (Simon Fraser University, daniel_monte@sfu.ca)

Abstract

The ability to commit to a contract may increase a player's payoff. In a repeated relationship, the lack of a complete contingency contract is usually explained by the presence of contracting costs. We study optimal contracts in a specific class of credibility models: relationships in which the surplus comes solely from screening. We show that the optimal contract is to reproduce the Perfect Bayesian Equilibrium of the game without commitment. In this sense, sequential rationality constraints do not bind. Therefore, we provide an alternative explanation for why a specific class of long-term relationships may often not be contracted upon.

Suggested Citation

  • Monte Daniel, 2010. "A Theory of Credibility under Commitment," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-15, July.
    • Handle: RePEc:bpj:bejtec:v:10:y:2010:i:1:n:33
    DOI: 10.2202/1935-1704.1591
    as

    Download full text from publisher

    File URL: https://doi.org/10.2202/1935-1704.1591
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.2202/1935-1704.1591?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Rey, Patrick & Salanie, Bernard, 1990. "Long-term, Short-term and Renegotiation: On the Value of Commitment in Contracting," Econometrica, Econometric Society, vol. 58(3), pages 597-619, May.
    2. Diamond, Douglas W, 1989. "Reputation Acquisition in Debt Markets," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 828-862, August.
    3. Robert J. Aumann, 1995. "Repeated Games with Incomplete Information," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011476, April.
    4. Balder, Erik J., 1996. "On the Existence of Optimal Contract Mechanisms for Incomplete Information Principal-Agent Models," Journal of Economic Theory, Elsevier, vol. 68(1), pages 133-148, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Janvier D. Nkurunziza, 2005. "Reputation and Credit without Collateral in Africa`s Formal Banking," Economics Series Working Papers WPS/2005-02, University of Oxford, Department of Economics.
    2. Jiao Wang & Lima Zhao & Arnd Huchzermeier, 2021. "Operations‐Finance Interface in Risk Management: Research Evolution and Opportunities," Production and Operations Management, Production and Operations Management Society, vol. 30(2), pages 355-389, February.
    3. Giovanni Trovato & Marco Alfó, 2006. "Credit rationing and the financial structure of Italian small and medium enterprises," Journal of Applied Economics, Universidad del CEMA, vol. 9, pages 167-184, May.
    4. Douglas Cumming & Lars Hornuf & Moein Karami & Denis Schweizer, 2023. "Disentangling Crowdfunding from Fraudfunding," Journal of Business Ethics, Springer, vol. 182(4), pages 1103-1128, February.
    5. Wang, Hefei, 2008. "Staged-financing contracts with private information," Journal of Financial Intermediation, Elsevier, vol. 17(2), pages 276-294, April.
    6. Koessler, Frederic & Laclau, Marie & Renault, Jérôme & Tomala, Tristan, 2022. "Long information design," Theoretical Economics, Econometric Society, vol. 17(2), May.
    7. Acharya, Viral V. & Skeie, David, 2011. "A model of liquidity hoarding and term premia in inter-bank markets," Journal of Monetary Economics, Elsevier, vol. 58(5), pages 436-447.
    8. Dinah Rosenberg & Eilon Solan & Nicolas Vieille, 2003. "The MaxMin value of stochastic games with imperfect monitoring," International Journal of Game Theory, Springer;Game Theory Society, vol. 32(1), pages 133-150, December.
    9. Xiaochi Wu, 2022. "Existence of value for a differential game with asymmetric information and signal revealing," International Journal of Game Theory, Springer;Game Theory Society, vol. 51(1), pages 213-247, March.
    10. Nieken, Petra & Schmitz, Patrick W., 2012. "Repeated moral hazard and contracts with memory: A laboratory experiment," Games and Economic Behavior, Elsevier, vol. 75(2), pages 1000-1008.
    11. Bülent Köksal & Cüneyt Orman, 2015. "Determinants of capital structure: evidence from a major developing economy," Small Business Economics, Springer, vol. 44(2), pages 255-282, February.
    12. Dirk Bergemann & Stephen Morris, 2019. "Information Design: A Unified Perspective," Journal of Economic Literature, American Economic Association, vol. 57(1), pages 44-95, March.
    13. Allen N. Berger & Gregory F. Udell, 1994. "Lines of credit and relationship lending in small firm finance," Proceedings 52, Federal Reserve Bank of Chicago.
    14. Roesler, Anne-Katrin & Deb, Rahul, 2021. "Multi-Dimensional Screening: Buyer-Optimal Learning and Informational Robustness," CEPR Discussion Papers 16206, C.E.P.R. Discussion Papers.
    15. Andrew Kosenko, 2020. "Mediated Persuasion," Papers 2012.00098, arXiv.org, revised Dec 2020.
    16. Xiaochi Wu, 2021. "Differential Games with Incomplete Information and with Signal Revealing: The Symmetric Case," Dynamic Games and Applications, Springer, vol. 11(4), pages 863-891, December.
    17. repec:dau:papers:123456789/9153 is not listed on IDEAS
    18. Marc Flandreau & Juan H. Flores & Norbert Gaillard & Sebastián Nieto-Parra, 2010. "The End of Gatekeeping: Underwriters and the Quality of Sovereign Bond Markets, 1815–2007," NBER Chapters, in: NBER International Seminar on Macroeconomics 2009, pages 53-92, National Bureau of Economic Research, Inc.
    19. Dorothée Rivaud-Danset, 1996. "Les contrats de crédit dans une relation de long terme. De la main invisible à la poignée de main," Revue Économique, Programme National Persée, vol. 47(4), pages 937-962.
    20. Vida, Péter & Āzacis, Helmuts, 2013. "A detail-free mediator," Games and Economic Behavior, Elsevier, vol. 81(C), pages 101-115.
    21. Frédéric Koessler & Françoise Forges, 2008. "Multistage Communication With And Without Verifiable Types," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 10(02), pages 145-164.

    More about this item

    Keywords

    commitment; reputation;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:bejtec:v:10:y:2010:i:1:n:33. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyter.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.