From Equals to Despots: The Dynamics of a Repeated Partnership with Private Information∗ (Preliminary Draft)

This paper considers the problem faced by n agents who repeatedly have to take a joint action, cannot resort to side payments, and each period are privately informed about their favorite actions. We study the properties of the optimal contract in this environment. We establish that first best values can be arbitrarily approximated (but not achieved) when the players are extremely patient. Also, we show that the provision of intertemporal incentives necessarily leads to a dictatorial mechanism: in the long run the optimal scheme converges to the adoption of one player’s favorite action.