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Incomplete Contracts and Signalling

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  • Kathryn E. Spier
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    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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    Bibliographic 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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