
“IInformation Revelation in Relational Contracts” by Yuk-fai Fong
Economics Seminar
Authors:
Yuk-fai Fong
Northwestern UniversityJin Li
Northwestern University
This paper shows that the efficiency of relational contracting can be increased by reducing the public information through a novel intertemporal-garbling process of signals. A distinctive and essential feature of our intertemporal-garbling process is that past outputs have enduring effects on future signals. This process reduces the principal's maximal reneging temptation by linking together the principal's non-reneging constraints both across states and over time.