The Allocation of Future Business: Dynamic Relational Contracts with Multiple Agents
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aer.20131082.pdf
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Author(s)
Barron, Daniel
Andrews, Isaiah Smith
Date Issued
September 2016
Journal
American Economic Review
Publisher
American Economic Association
Citation
Andrews, Isaiah, and Barron, Daniel. “The Allocation of Future Business: Dynamic Relational Contracts with Multiple Agents.” American Economic Review 106, 9 (September 2016): 2742–2759
Version
Final published version
Abstract
We consider how a firm dynamically allocates business among several suppliers to motivate them in a relational contract. The firm chooses one supplier who exerts private effort. Output is non-contractible, and each supplier observes only his own relationship with the principal. In this setting, allocation decisions constrain the transfers that can be promised to suppliers in equilibrium. Consequently, optimal allocation decisions condition on payoff-irrelevant past performance to make strong incentives credible. We construct a dynamic allocation rule that attains first-best whenever any allocation rule does. Thisallocation rule performs strictly better than any rule that depends only on payoff-relevant information. (JEL D21, D82, L14, L24).
MIT Department
Massachusetts Institute of Technology. Department of Economics
Terms of Use
Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use.
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DOI of Published Version
https://doi.org/10.1257/aer.20131082
