Theory Seminar: Relational Contracts and Savings
The School of Economics invites you to a seminar presented by Shingo Ishiguro (Osaka University).
In this paper we present a dynamic model of relational contracts in which agents are allowed to save and borrow in an outside competitive credit market. In sharp contrast to the existing studies which have assumed no savings, we show that the efficiency of relational contracts is drastically improved by the saving opportunity; even in a finite horizon environment the lack of verifiable information causes no efficiency losses in all but last period when agents engage in hidden savings which are not observed to the principals hiring them.
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