Renegotiation in agency contracts, menus vs. simple contracts
AbstractThe literature on contracts has shown that renegotiation in agency relationships generates efficiency losses when the principal leads the renegotiation. We show that contractual incompleteness may reduce such efficiency loss. This provides an explanation to the widespread use of simple contracts. We further point at the limited liability of the agent as a source of inefficiency when he leads the renegotiation; this latter result tempers the irrelevancy of contractual incompleteness demonstrated earlier in the literature.
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Bibliographic InfoArticle provided by Springer in its journal Spanish Economic Review.
Volume (Year): 4 (2002)
Issue (Month): 4 ()
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