Relational Enforcement

Peter Achim; Jan Knoepfle

doi:10.3982/TE5183

Relational Enforcement

Peter Achim, Jan Knoepfle

Economics

Research output: Contribution to journal › Article › peer-review

Abstract

A principal incentivizes an agent to maintain compliance and to truthfully announce any breaches of compliance. Compliance is imperfectly controlled by the agent’s private effort choices, is partially persistent, and is verifiable by the principal only through costly inspections. We show that in principal-optimal equilibria, the principal enforces maximum compliance using deterministic inspections. Periodic inspection cycles are suspended during periods of self-reported noncompliance, during which the agent is fined. We show how commitment to random inspections would benefit the principal, and discuss possible ways for the principal to overcome her commitment problem.

Original language	English
Article number	823-863
Number of pages	41
Journal	Theoretical Economics
Volume	19
DOIs	https://doi.org/10.3982/TE5183
Publication status	Published - 1 May 2024

Bibliographical note

Access to Document

10.3982/TE5183Licence: CC BY-NC

Relational enforcement
© 2024 The Authors
Final published version, 449 KBLicence: CC BY-NC

Cite this

@article{af04cbd704624ea3a7930c08bc217957,

title = "Relational Enforcement",

abstract = "A principal incentivizes an agent to maintain compliance and to truthfully announce any breaches of compliance. Compliance is imperfectly controlled by the agent{\textquoteright}s private effort choices, is partially persistent, and is verifiable by the principal only through costly inspections. We show that in principal-optimal equilibria, the principal enforces maximum compliance using deterministic inspections. Periodic inspection cycles are suspended during periods of self-reported noncompliance, during which the agent is fined. We show how commitment to random inspections would benefit the principal, and discuss possible ways for the principal to overcome her commitment problem.",

author = "Peter Achim and Jan Knoepfle",

note = "{\textcopyright} 2024 The Authors",

year = "2024",

month = may,

day = "1",

doi = "10.3982/TE5183",

language = "English",

volume = "19",

journal = "Theoretical Economics",

issn = "1933-6837",

publisher = "Society for Economic Theory",

}

TY - JOUR

T1 - Relational Enforcement

AU - Achim, Peter

AU - Knoepfle, Jan

PY - 2024/5/1

Y1 - 2024/5/1

N2 - A principal incentivizes an agent to maintain compliance and to truthfully announce any breaches of compliance. Compliance is imperfectly controlled by the agent’s private effort choices, is partially persistent, and is verifiable by the principal only through costly inspections. We show that in principal-optimal equilibria, the principal enforces maximum compliance using deterministic inspections. Periodic inspection cycles are suspended during periods of self-reported noncompliance, during which the agent is fined. We show how commitment to random inspections would benefit the principal, and discuss possible ways for the principal to overcome her commitment problem.

AB - A principal incentivizes an agent to maintain compliance and to truthfully announce any breaches of compliance. Compliance is imperfectly controlled by the agent’s private effort choices, is partially persistent, and is verifiable by the principal only through costly inspections. We show that in principal-optimal equilibria, the principal enforces maximum compliance using deterministic inspections. Periodic inspection cycles are suspended during periods of self-reported noncompliance, during which the agent is fined. We show how commitment to random inspections would benefit the principal, and discuss possible ways for the principal to overcome her commitment problem.

U2 - 10.3982/TE5183

DO - 10.3982/TE5183

M3 - Article

SN - 1933-6837

VL - 19

JO - Theoretical Economics

JF - Theoretical Economics

M1 - 823-863

ER -