Publications
“Relational Contracts and the Value of Relationships”
American Economic Review, 102(2): 750-79, 2012
Abstract. This article studies optimal relational contracts when the value of the relationship between contracting parties is not commonly known. I consider a principal-agent setting where the principal has persistent private information about her outside option. I show that if the principal has the bargaining power, she wants to understate her outside option to provide strong incentives and then renege on promised payments, while if the uninformed agent has the bargaining power, the principal wants to overstate her outside option to capture more surplus. I characterize how information is revealed, how the relationship evolves, and how this depends on bargaining power.
“Financial Globalization, Crises, and Contagion,” with S. Schmukler and P. Zoido-Lobaton, in A. Morales (Ed.), International Macroeconomics: Recent Developments, Nova Science Publishers, 2006.
“Distributional Effects of Crises: The Financial Channel,” with S. Schmukler, Economia, 5(1), 1-67,
2004. Lead article.
Working Papers and Works in Progress
"Relationship Building: Conflict and Project Choice over Time"
Abstract. The question of how to develop a relationship is central to business and management. This is especially true when the environment is characterized by informational asymmetries and subjectivity, as for example in management consulting. This paper presents a model of relationship building inspired by the consultant-client relationship. Consistent with the evidence, it shows that consultants and clients optimally start with low-risk, low-return projects, and move up to high-risk, high-return projects over time as they accumulate relationship capital. The probability of conflict and breakup is decreasing over the course of the relationship, but may jump when a higher-risk project is adopted.
"Investing in a Relationship"
Abstract: A principal makes an upfront investment before starting a repeated relationship with an agent. The investment increases the value of the relationship; however, because the parties bargain after the investment is sunk, the principal may have to share the returns with the agent. I study how investment and efficiency are affected by the contracting environment. When the returns to the investment are commonly known, informal contracting environments ex post may be more efficient as they induce higher investment ex ante: the principal invests not only to generate direct returns, but also to relax contracting constraints and improve relational incentives. Unobservability of investment returns increases the principal's ability to appropriate the returns, but it reduces her ability to improve relational incentives. The optimal control of information depends on the parties' bargaining powers.
"Optimal Contracts for Experimentation," with Navin Kartik and Qingmin Liu
"Fiscal Rules and Discretion under Persistent Shocks," with Pierre Yared
Discussions
"Advocacy and Dynamic Delegation," by Boleslavsky and Lewis, November 2011, Columbia-Duke-Northwestern IO Theory Conference
"Development Uncorked: Learning About New Chilean Wine Exporters in the UK," by Macchiavello, July 2011, NBER Entrepreneurship Working Group Meeting
"The Burden of Past Promises," by Li and Matouschek, May 2011, NBER Organizational Economics Working Group Meeting
"Markets for Advice," by Fuchs and Garicano, January 2010, ASSA Meetings
"Relational Contracts, Limited Liability, and Employment Dynamics," by Fong and Li, November 2009, NBER Organizational Economics Working Group Meeting
|
