Secret Contracts for Efficient Partnerships∗

By allocating different information to team members, secret contracts can provide better incentives to perform with an intuitive organizational design. For instance, they may help to monitor monitors, and attain approximately efficient partnerships by appointing a secret principal. More generally, secret contracts highlight a rich duality between enforceability and identifiability. It naturally yields necessary and sufficient conditions on a monitoring technology for any team using linear transfers to approximate efficiency (with and without budget balance). The duality is far-reaching: it is robust to complications in the basic model such as environments with infinitely many actions and signals. Thus, we obtain a subdifferential characterization of equilibrium payoffs as well as a tight folk theorem in discounted repeated games with imperfect private monitoring and mediated communication. JEL Classification: D21, D23, D82.