Econometrica: Sep, 1981, Volume 49, Issue 5

Monitoring Cooperative Agreements in a Repeated Principal-Agent Relationship

https://doi.org/0012-9682(198109)49:5<1127:MCAIAR>2.0.CO;2-T
p. 1127-1148

Roy Radner

The situation in which a principal-agent relationship is repeated finitely many times (T) is formulated as a sequential game. For any Pareto-optimal cooperative arrangement in the one-period game that dominates a one-period Nash equilibrium, and any positive number epsilon, there exists for every sufficiently large T a (noncooperative) epsilon equilibrium of the T-period game that yields each player an average expected utility that is at least his expected utility in the one-period cooperative arrangement, less epsilon.