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Flexible contracts

Author

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  • Gottardi, Piero
  • Tallon, Jean Marc
  • Ghirardato, Paolo

Abstract

This paper studies the costs and benefits of delegating decisions to superiorly informed agents, that is of adopting flexible contracts, relative to the use of rigid, non-discretionary contracts. The main focus of the paper lies in the analysis of the costs of delegation, primarily agency costs, versus their benefits, primarily the flexibility of the action choice in two different environments, one with risk and one with ambiguity.

Suggested Citation

  • Gottardi, Piero & Tallon, Jean Marc & Ghirardato, Paolo, 2017. "Flexible contracts," Games and Economic Behavior, Elsevier, vol. 103(C), pages 145-167.
    • Handle: RePEc:eee:gamebe:v:103:y:2017:i:c:p:145-167
    DOI: 10.1016/j.geb.2016.01.013
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    More about this item

    Keywords

    Delegation; Flexibility; Agency costs; Multiple priors; Imprecision aversion;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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