The Allocation of Future Business: Dynamic Relational Contracts with Multiple Agents
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, allo...
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| Other Authors: | |
| Format: | Article |
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American Economic Association
2018
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| Online Access: | http://hdl.handle.net/1721.1/113700 |
| _version_ | 1826217242961903616 |
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| author | Barron, Daniel Andrews, Isaiah Smith |
| author2 | Massachusetts Institute of Technology. Department of Economics |
| author_facet | Massachusetts Institute of Technology. Department of Economics Barron, Daniel Andrews, Isaiah Smith |
| author_sort | Barron, Daniel |
| collection | MIT |
| description | 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). |
| first_indexed | 2024-09-23T17:00:15Z |
| format | Article |
| id | mit-1721.1/113700 |
| institution | Massachusetts Institute of Technology |
| last_indexed | 2024-09-23T17:00:15Z |
| publishDate | 2018 |
| publisher | American Economic Association |
| record_format | dspace |
| spelling | mit-1721.1/1137002022-10-03T09:46:14Z The Allocation of Future Business: Dynamic Relational Contracts with Multiple Agents Barron, Daniel Andrews, Isaiah Smith Massachusetts Institute of Technology. Department of Economics Andrews, Isaiah Smith 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). 2018-02-15T20:17:47Z 2018-02-15T20:17:47Z 2016-09 2018-02-13T18:03:03Z Article http://purl.org/eprint/type/JournalArticle 0002-8282 1944-7981 http://hdl.handle.net/1721.1/113700 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 http://dx.doi.org/10.1257/aer.20131082 American Economic Review 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. application/pdf American Economic Association American Economic Association |
| spellingShingle | Barron, Daniel Andrews, Isaiah Smith The Allocation of Future Business: Dynamic Relational Contracts with Multiple Agents |
| title | The Allocation of Future Business: Dynamic Relational Contracts with Multiple Agents |
| title_full | The Allocation of Future Business: Dynamic Relational Contracts with Multiple Agents |
| title_fullStr | The Allocation of Future Business: Dynamic Relational Contracts with Multiple Agents |
| title_full_unstemmed | The Allocation of Future Business: Dynamic Relational Contracts with Multiple Agents |
| title_short | The Allocation of Future Business: Dynamic Relational Contracts with Multiple Agents |
| title_sort | allocation of future business dynamic relational contracts with multiple agents |
| url | http://hdl.handle.net/1721.1/113700 |
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