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Gathering Information before Signing a Contract

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  • Crémer, Jacques
  • Khalil, Fahad

Abstract

After being offered a contract, an agent has the possibility to observe the state of nature. This enables him to refuse the contract in unfavorable states but burdens him with an observation cost. The authors show that the principal offers a contract in which the agent has no incentive to observe the state of nature and they explore its terms. Later, they show that the principal finds it profitable to organize competition between several agents, even though he has monopoly power and can push a single agent down to his reservation utility. Copyright 1992 by American Economic Association.

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Bibliographic Info

Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 5.

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Date of creation: 1991
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Publication status: Published in American Economic Review, vol.�82, n°3, 1992, p.�566-578.
Handle: RePEc:ide:wpaper:1219

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  25. Bull, Clive, 1987. "The Existence of Self-Enforcing Implicit Contracts," The Quarterly Journal of Economics, MIT Press, vol. 102(1), pages 147-59, February.
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  28. Olivier Compte, 1998. "Communication in Repeated Games with Imperfect Private Monitoring," Econometrica, Econometric Society, vol. 66(3), pages 597-626, May.
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  30. Doni Nicola, 2005. "L'affidamento mediante gara di contratti pubblici: l'importanza della reputazione," Politica economica, Società editrice il Mulino, issue 2, pages 307.
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