Ulric B. and Evelyn L. Bray Social Sciences Seminar

Abstract: Recent work on counter-insurgency, client states, and proxy wars has adopted a principal-agent framework to study the principal's ability to induce an agent to exert effort on the principal's behalf. This work has broadly emphasized the moral hazard problem and the actors' inability to make binding commitments. The latter is usually addressed through the logic of repeated games in which reneging on an agreement triggers costly future punishment. This study analyzes a related but fundamentally different incentive problem that undermines the principal's ability to induce an agent to exert effort on its behalf. The repeated-game's enforcement mechanism tends to breakdown if the principal is trying to get the agent to resolve a problem that, if resolved, (i) creates or considerably exacerbates an ongoing problem for the agent and that (ii) simultaneously eliminates or significantly reduces the agent's ability to impose future costs on the principal. The principal cannot induce the agent to exert much effort in resolving the problem in these circumstances, and the problem persists.