Working Paper: CEPR ID: DP12540
Authors: Susanne Goldlücke; Sebastian Kranz
Abstract: We propose a unified framework to study relational contracting and hold-up problems in infinite horizon stochastic games with monetary transfers. Starting from the observation that the common formulation of relational contracts as Pareto-optimal public perfect equilibria is in stark contrast to fundamental assumptions of hold-up models, we develop a model in which relational contracts are repeatedly negotiated in a relationship. New negotiations take place with positive probability each period and treat previous informal agreements as bygones. The concept nests relational contracting and hold-up models as opposite corner cases. Allowing for intermediate cases sheds light on many plausible trade-offs that do not arise in these corner cases.
Keywords: relational contracting; holdup; negotiations; stochastic games
JEL Codes: C73; C78; D23; L14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| relational contracting (L14) | mitigation of holdup problems (D86) |
| negotiation probability (C78) | outcomes (P47) |
| negotiation dynamics (C78) | strategic decision-making (D70) |
| positive negotiation probabilities (C78) | decision-making process regarding vulnerability (D87) |