Logo Logo

Putting the Relationship First

Abstract

Abstract I examine relational contracts and investment using a tractable game of imperfect private monitoring. A principal requires one of several products in each period from a market of agents. If output is not contractible, the principal relies on a small network of agents relative to first-best. These agents “put the relationship first.” By investing to produce many different products that may be required by the principal, they lock themselves into the relationship, thereby increasing effort provision. I extend the model to show that a similar result holds if the principal requires every product in each period, discuss implications of the framework, and argue that agents might have an incentive to resist socially efficient legal reform.

Type

Working Paper

Author(s)

Daniel Barron

Date Published

2013

Citations

Barron, Daniel. 2013. Putting the Relationship First.

KELLOGG INSIGHT

Explore leading research and ideas

Find articles, podcast episodes, and videos that spark ideas in lifelong learners, and inspire those looking to advance in their careers.
learn more

COURSE CATALOG

Review Courses & Schedules

Access information about specific courses and their schedules by viewing the interactive course scheduler tool.
LEARN MORE

DEGREE PROGRAMS

Discover the path to your goals

Whether you choose our Full-Time, Part-Time or Executive MBA program, you’ll enjoy the same unparalleled education, exceptional faculty and distinctive culture.
learn more