Adaptive Contracting: The Trial-and-Error Approach to Outsourcing
AbstractAdaptive contracting is defined as a strategy in which a principal experiments - through trial-and-error - with the degree of contractual completeness. We highlight two potential benefits of an adaptive approach: First, the implied delegation of authority can be beneficial for the principal even if the agent acts opportunistically. Second, the government extracts information from experimenting with delegation of authority and we identify a positive option value associated with this learning feature.
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Bibliographic InfoPaper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 03-18.
Length: 27 pages
Date of creation: Apr 2003
Date of revision:
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incomplete contracting; trial and error; authority; outsourcing;
Other versions of this item:
- Morten Bennedsen & Christian Schultz, 2005. "Adaptive contracting: the trial-and-error approach to outsourcing," Economic Theory, Springer, vol. 25(1), pages 35-50, 01.
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
- L97 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Utilities: General
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