Endogenous Verifiability and Optimality in Agency: A non-contingent approach
AbstractIn the context of a principal-agent model where verification of an agent’s effort is endogenously determined through strategic interactions between contracting parties, we derive a necessary and suficient condition to achieve the first best with a non-contingent or incomplete contract. These conditions relate the Principal’s benefit, the Agent’s cost, the probability of winning and the cost of litigation. Also, these conditions are found to be more general than the ones established in Ishiguro (2002) within a similar setup.
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Bibliographic InfoPaper provided by Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines in its series ILADES-Georgetown University Working Papers with number inv189.
Length: 31 pages
Date of creation: Sep 2007
Date of revision:
Find related papers by JEL classification:
- D20 - Microeconomics - - Production and Organizations - - - General
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
- K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
- M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-03-08 (All new papers)
- NEP-BEC-2008-03-08 (Business Economics)
- NEP-CTA-2008-03-08 (Contract Theory & Applications)
- NEP-LAW-2008-03-08 (Law & Economics)
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