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Stationarity of the Optimal Enforcement Contract in the Complete Information Case

Author

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  • Aggey Simons

    (Department of Economics, University of Ottawa, Canada)

Abstract

This paper examines the stationarity of optimal contracts in infinitely repeated principal–agent relationships under complete information and enforcement constraints. We demonstrate that stationarity emerges as a robust feature of optimal contracts when agent types and actions are fully observable, and contract enforcement is supported by both public remedies and private termination threats. Under complete information, the trade-offs between enforcement costs and relational value become significantly simplified, resulting in stationary outcomes even when enforcement constraints are binding. These findings offer insights into contract design in environments where non-stationary profiles are either impractical or prohibitively costly.

Suggested Citation

  • Aggey Simons, 2025. "Stationarity of the Optimal Enforcement Contract in the Complete Information Case," Working Papers 2501E, University of Ottawa, Department of Economics.
    • Handle: RePEc:ott:wpaper:2501e
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    File URL: http://hdl.handle.net/10393/50081
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    More about this item

    Keywords

    dynamic contracts; contract enforcement; stationarity; complete information.;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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