Retention Contracts under Partial Information Electoral Competition Case Study

Abstract

This study copes with a class of principal-agent problems where information asymmetry represents an important characteristic. The paper examines the relationship between the principal and agents. The principal has to perform two agents’ screening and discipline tasks. To complete his duties, the principal lacks complete information concerning the agents’ behavior and rarely has partial information regarding the failure or success of launched tactics, alliances, rationalization, etc. We analyze the type of retention contracts (implicit) used by the principal to replace or retain agents. Consistent with literature findings, we demonstrated that agents could be extremely active in showing their competencies; the relationship between dismissal and bad performance is invalid; and occasionally, the principal dismisses qualified agents. Then we determined the rules under which electorates urge political parties to acquire information and choose optimal policies from the voter’s viewpoint.