Econometrica: Mar 2002, Volume 70, Issue 2

The Time Structure of Self‐Enforcing Agreements

https://doi.org/10.1111/1468-0262.00295
p. 547-582

Debraj Ray

A principal and an agent enter into a sequence of agreements. The principal faces an interim participation constraint at each date, but can commit to the current agreement; in contrast, the agent has the opportunity to renege on the current agreement. We study the time structure of agreement sequences that satisfy participation and no‐deviation constraints and are (constrained) efficient. We show that every such sequence must, after a finite number of dates, exhibit a continuation that maximizes the payoff over all such efficient, self‐enforcing sequences. Additional results are provided for situations with transferable payoffs.

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