| This thesis is a collection of essays on dynamic contracts under lack of commitment.;In Chapter l, we consider the case of two players in continuous time who have privately observable opportunities to do favors, and where the arrival process is a poisson process. We characterize the Pareto frontier of Public Perfect Equilibria (PPE) and show that it is self-generating. This guarantees that the equilibrium is renegotiation proof. We also find that optimal PPE have two key characteristics. First, the relative price of favors decreases with a player's entitlement and second, the disadvantaged player's utility increases over time during periods of no trade, so in the optimal equilibria there is forgiveness.;Chapter 2 studies efficient risk sharing between two agents in the presence of a public good under a lack of commitment. One agent controls the provision of the public good, whereas the second agent can contribute indirectly to its provision by making monetary transfers to the first. Using minmax punishments, we look for the Pareto frontier of the Subgame Perfect Equilibrium payoffs and characterize the model's equilibrium. Agents' consumptions and continuation values covary positively with their income levels. In the case where the constraint for the public good provision binds, both agents' private consumptions increase at the expense of the public good provision. In the long run, if some first best allocation is sustainable, the long-term equilibrium will converge to a first best allocation. Otherwise, agents' utilities oscillate over a finite set of values.;In Chapter 3, we apply the theory from Chapter 2 to the problem of optimal child support payments between separated parents where the custodial mother exclusively controls the child's consumption. We incorporate the legal background by allowing for strict child support guidelines and enforcement. The model predicts an increase in the ratio of mother to child consumption as a result of the law. Using CEX data on unmarried mothers with and without child support, we find evidence backing our theory. |
