Interim Information in Long Term Contracts
نویسنده
چکیده
This paper studies the effectiveness of interim information in reducing inefficiencies in long term relationships. If the interim information is verifiable, it resolves all problems of asymmetric information. Under nonverifiability, the information alleviates the contracting problem only partially and its optimal use depends on the signal’s accuracy and timing. Precise and early signals enable the principal to extract all rents and adjust allocations closer to the first best. Imprecise or late signals affect only future allocations and leaves the agent with a rent. Due to a failure of the revelation principle, the optimal contract under non–verifiability is derived by employing the theory of communication equilibrium.
منابع مشابه
The Impact of EU’s Competition Laws on the Long-Term Gas Contracts
Competion laws follow varions goals including economic targets such as increase of economic efficiency and consumers' welfare. This branch of law has resisted against agreements and contracts which endanger the consumers' or public welfare and has tried to prevent such contracts and processes. European Union is among the greatest consumers and importer of energy in the world. The most part of t...
متن کاملGetting to Know your Agent: Interim Information in Long Term Contractual Relationships
In a finitely repeated principal agent relationship with adverse selection I study (exogenous) interim information that is revealed during a long term relationship. Interim information mitigates adverse selection. Verifiability, measured by the cost of signal manipulation, and the signal’s informativeness determine the use and effectiveness of interim information: Less precise and more manipula...
متن کاملDynamic Yardstick Mechanisms1
This paper shows that the inability of principals to commit to long term contracts is irrelevant when dealing with several agents whose private information is correlated. This sharply contrasts with the dynamics of contracting without such correlation. The paper also explores what limitations on yardstick mechanisms can justify the use of long term contracts. We found that the inability of a pr...
متن کاملPricing and hedging long-term options
Do long-term and short-term options contain di!erential information? If so, can long-term options better di!erentiate among alternative models? To answer these questions, we "rst demonstrate analytically that di!erences among alternative models usually may not surface when applied to short-term options, but do so when applied to longterm contracts. Using S&P 500 options and LEAPS, we "nd that s...
متن کاملThe Role of Commitment and Contract Design inSupplier Relationships with Common Uncertainty
In this paper we consider a repeated interaction between a manufacturing rm and a subcontractor. The moral hazard problem present in this relationship is aggravated by the fact that both parties do not have perfect knowledge about the base cost level of the project carried out by the subcontractor but only have identical a priori beliefs. Short term and long term contracts are compared in a two...
متن کامل