Relational contracts and the first-order approach

@inproceedings{Hwang2016RelationalCA,
  title={Relational contracts and the first-order approach},
  author={Sunjoo Hwang},
  year={2016}
}
  • Sunjoo Hwang
  • Published 2016
  • Mathematics
  • This paper justifies the first-order approach (FOA) to relational contract models. Optimal relational contracts pay a bonus if an agent passes an evaluation, where the cutoff point is independent of signal distribution or the agent’s cost function. Based on this independence, I find a weak FOA-justifying condition, which requires convexity of the underlying distribution-cost structure only at the cutoff point. Prominent examples (e.g., the normal or generalized error distribution with various… CONTINUE READING

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