Contract-Based Motivation for Keeping Records of a Manager's Reporting and Budgeting History

This paper analyzes the role of the agent's bankruptcy constraints in multiperiod principal-agent models with asymmetric information. Conditions are provided under which commitment to a long-term contract involving N rounds of investment improves upon repetition of N identical single-period contracts. Further, when the agent's reservation wage is sufficiently low the optimal contract is always long term. Keeping records of a manager's history of reporting activity facilitates contracting, since optimal contracts may require a link between past reports and future investments over a duration of two or more periods.

• 저널Management Science · 40(4) · 484–495
• 토픽Auction Theory and Applications · Management Science and Operations Research
• DOI10.1287/mnsc.40.4.484
• 저자Anil Arya, John C. Fellingham, Richard Young