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Incomplete Contracts and Signalling

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Author Info
Kathryn E. Spier
Abstract

This article presents a principal-agent model in which asymmetric information leads to contractual incompleteness. I show that in the presence of transactions costs, incompleteness may act as a signal of the principal's type. Two types of transactions costs are considered: those incurred ex ante (drafting costs) and those incurred ex post (enforcement or verification costs). I prove that in the presence of either of these costs asymmetric information leads to more contractual incompleteness than full information does.

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File URL: http://links.jstor.org/sici?sici=0741-6261%28199223%2923%3A3%3C432%3AICAS%3E2.0.CO%3B2-T&origin=repec
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Publisher Info
Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 23 (1992)
Issue (Month): 3 (Autumn)
Pages: 432-443
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Handle: RePEc:rje:randje:v:23:y:1992:i:autumn:p:432-443

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  1. Nick Feltovich & Rick Harbaugh & Ted To, 1998. "Too Cool for School? A Theory of Countersignaling," Game Theory and Information 9811002, EconWPA. [Downloadable!]
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  2. Nick Feltovich & Rick Harbaugh & Ted To, . "Signaling and Countersignaling: A Theory of Understatement," Claremont Colleges Working Papers 1999-21, Claremont Colleges. [Downloadable!]
  3. Steven Shavell, 2003. "On the Writing and the Interpretation of Contracts," NBER Working Papers 10094, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Eduardo Saavedra, . "Alternative Institucional Arrangements in Network Utilities: An Incomplete Contracting Approach," ILADES-Georgetown University Working Papers inv116, Ilades-Georgetown University, School of Economics and Bussines. [Downloadable!]
  5. Oliver Hart & John Moore, 2004. "Agreeing Now to Agree Later: Contracts that Rule Out but do not Rule In," NBER Working Papers 10397, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Helmut Rainer, 2003. "Should We Write Prenuptial Contracts?," Economics Discussion Papers 572, University of Essex, Department of Economics. [Downloadable!]
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  7. Dessein, Wouter, 2002. "Information and Control in Alliances and Ventures," CEPR Discussion Papers 3418, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  8. Vasconcelos, Luis, 2006. "Contractual signalling, relationship-specific investment and exclusive agreements," FEUNL Working Paper Series wp495, Universidade Nova de Lisboa, Faculdade de Economia. [Downloadable!]
  9. Fredrik Andersson, 2001. "Adverse selection and bilateral asymmetric information," Journal of Economics, Springer, vol. 74(2), pages 173-195, June. [Downloadable!] (restricted)
  10. Kouroche Vafaï, 1999. "A Theory of Abuse of Authority in Hierarchies," CIRANO Working Papers 99s-07, CIRANO. [Downloadable!]
  11. Wernerfelt, Birger, 2003. "Indirect Adjustment-Costs Under Alternative Coordination Regimes," Working papers 4336-01, Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
  12. Eric Rasmusen & ., 1995. "A Model of Negotiation, Not Bargaining," Game Theory and Information 9506001, EconWPA, revised 14 Jun 1995. [Downloadable!]
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  13. repec:bep:eapcon:v:1:y:2002:i:1:p:1005-1005 is not listed on IDEAS
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  14. Louis Kaplow, 1996. "Optimal Insurance Contracts When Establishing The Amount of Losses is Costly," NBER Working Papers 4290, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. Luca Anderlini & Leonardo Felli & Andrew Postlewaite, . "Should Courts Always Enforce What Contracting Parties Write?," Working Papers gueconwpa~06-06-07, Georgetown University, Department of Economics. [Downloadable!]
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  16. Eric Rasmusen & ., 1995. "``The Economics of Agency Law and Contract Formation''," Law and Economics 9506002, EconWPA. [Downloadable!]
  17. Schuett, Florian, 2008. "Field-of-use restrictions in licensing agreements," MPRA Paper 8534, University Library of Munich, Germany. [Downloadable!]
  18. Steven A. Matthews, 1993. "Renegotiation of Sales Contracts," Discussion Papers 1051, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  19. Donald Vandegrift, 1997. "Decision Costs, Contract Excuse, and the Westinghouse Commercial Impracticability Case," European Journal of Law and Economics, Springer, vol. 4(1), pages 41-54, January. [Downloadable!] (restricted)
  20. Daron Acemoglu, Miles B. Gietzmann, 1998. "Auditor independence, incomplete contracts and the role of legal liability," European Accounting Review, Taylor and Francis Journals, vol. 6(3), pages 355-375, September. [Downloadable!] (restricted)
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