Title

Generous Long-Term Contracts

Author(s)

Sylvain C. Chassang Sylvain Chassang (Princeton University)

Abstract

I argue that in long-term consumer–producer relationships, menus of contracts can be advantageously replaced by a single generous contract such that, at any point in time, the sum of a consumer’s transfers is equal to the sum of transfers they would have made under the contract that is the best for them in hindsight. Such generous long-term contracts can increase skeptical consumers’ demand for complex and higher-powered contracts while approximately implementing the same outcomes as the underlying menu evaluated by a rational decision maker. Applications include voluntary load shedding in retail electricity markets and cost sharing in health insurance.

Creation Date

2026-05

Section URL ID

Paper Number

354

URL

https://gceps.princeton.edu/wp-content/uploads/2026/07/wp354_Chassang_LongTermContracts.pdf

File Function

Jel

D11, D12

Keyword(s)

Suppress

false

Series

3