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Repeated Contracting in Decentralised Markets

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  • Sambuddha Ghosh
  • Seungjin Han

Abstract

We consider a model where multiple principals repeatedly offer short-term contracts to three or more agents with private information. Under low discounting there exists a simple class of mechanisms that sustains all equilibrium allocations that could be generated by arbitrarily complex mechanisms. This equivalence result leads to a simple algorithm for computing equilibrium payoffs; this contrasts with the one-shot setting, where closed form expressions of such payoffs do not exist. Endogenous monitoring by agents weakens incentive compatibility relative to one-shot contracting; this lowers minmax values, expanding the set of equilibrium payoffs.

Suggested Citation

  • Sambuddha Ghosh & Seungjin Han, 2012. "Repeated Contracting in Decentralised Markets," Department of Economics Working Papers 2012-03, McMaster University, revised May 2013.
    • Handle: RePEc:mcm:deptwp:2012-03
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    File URL: http://socserv.mcmaster.ca/econ/rsrch/papers/archive/2012-03.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    relational contracts; repeated contracting; competing mechanisms; folk theorems; endogenous monitoring;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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