In a dynamic model of asymmetric information between the owner of a firm and a manager, we investigate the optimal set of contingencies on which an incentive contract should depend when renegotiation is possible. In particular, we characterize the circumstances in which the contracting parties find it desirable to deliberately restrict what the owner can monitor, thereby limiting the contractible contingencies. Our findings thus provide an endogenous explanation for contract simplicity, in contrast to those based on transactions costs or bounded rationality.
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Volume (Year): 26 (1995) Issue (Month): 4 (Winter) Pages: 704-719 Download reference. The following formats are available: HTML
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Helmut Bester & Roland Strausz, 2003.
"Contracting with Imperfect Commitment and Noisy Communication,"
Discussion Papers
2, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
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