For how long to tie your hands? Stable relationships in an unstable environment

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3 Citations (Scopus)

Abstract

The Kreps-Wilson-Milgrom-Roberts framework is one of the most renowned ways of modelling reputation-building. Once the number of repetitions of the game is considered as a choice variable, such a framework can fruitfully be employed to study the optimal length of a commitment to a relationship. We analyze a model where a principal plays with an agent a finitely repeated trust game, characterize the optimal length of the relationship between principal and agent when the principal's preferences on the agent's type stochastically change over time and show that a commitment to a stable relationship may be optimal (even) in very unstable environments.
Original languageEnglish
Pages (from-to)93-120
Number of pages28
JournalJOURNAL OF ECONOMICS
Volume95
DOIs
Publication statusPublished - 2008

Keywords

  • Commitment to a relationship
  • Incomplete information
  • Repeated games
  • Reputation
  • Stable relationships

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