Cover of: Relational Contracts: Reputation and Renegotiation
David G. Pearce, Ennio Stacchetti

Relational Contracts: Reputation and Renegotiation

Section: Articles
Volume 179 (2023) / Issue 3, pp. 562-578 (17)
Published 30.11.2023
DOI 10.1628/jite-2023-0043
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Summary
This paper outlines some thoughts on relational contracts. Such a contract can involve an implicit agreement to behave in certain ways, that includes the use of explicit, legally enforceable contracts, which may be rewritten as play proceeds. The use of implicit contracts involves a series of challenges not encountered with a legal contract that irrevocably specifies all contingent behavior. What agreements are credible? What threatened punishments will withstand efforts to renegotiate? To what extent can a long-run player establish a reputation for a particular kind of behavior? Can information design and Bayesian persuasion usefully be viewed through this lens?