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On Randomization in Coalition Contracts

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  • Schmitz, Patrick W.

Abstract

This article analyzes a much debated clause in the 1996 coalition contract between SPD and F.D.P. in Rheinland-Pfalz. Two parties write a contract, based on which decisions under incomplete information have to be made at a later point in time. It is shown that a complex complete contract can achieve the first best outcome. However, a simple incomplete contract can implement the first best outcome only if use of seemingly inefficient randomization is made.

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File URL: http://mpra.ub.uni-muenchen.de/13446/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 13446.

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Date of creation: 1998
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Handle: RePEc:pra:mprapa:13446

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Related research

Keywords: incomplete contracts; asymmetric information; coalitions; renegotiation;

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References

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  7. Ewerhart, Christian & Schmitz, Patrick W., 1997. "Ausgewählte Anwendungen der Theorie unvollständiger Verträge," MPRA Paper 6943, University Library of Munich, Germany.
  8. Ewerhart, Christian & Schmitz, Patrick W., 1996. "Die theoretische Fundierung unvollständiger Verträge," MPRA Paper 6947, University Library of Munich, Germany.
  9. Werner Güth & Martin Hellwig, 1986. "The private supply of a public good," Journal of Economics, Springer, Springer, vol. 46(1), pages 121-159, December.
  10. Huberman, Gur & Kahn, Charles M, 1988. "Limited Contract Enforcement and Strategic Renegotiation," American Economic Review, American Economic Association, American Economic Association, vol. 78(3), pages 471-84, June.
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  12. Roger B. Myerson, 1977. "Incentive Compatability and the Bargaining Problem," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 284, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  13. Bulow, Jeremy & Roberts, John, 1989. "The Simple Economics of Optimal Auctions," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(5), pages 1060-90, October.
  14. d'Aspremont, Claude & Gerard-Varet, Louis-Andre, 1979. "Incentives and incomplete information," Journal of Public Economics, Elsevier, Elsevier, vol. 11(1), pages 25-45, February.
  15. Aghion, Philippe & Tirole, Jean, 1994. "The Management of Innovation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(4), pages 1185-1209, November.
  16. McAfee, R. Preston, 1991. "Efficient allocation with continuous quantities," Journal of Economic Theory, Elsevier, Elsevier, vol. 53(1), pages 51-74, February.
  17. Hermalin, Benjamin E & Katz, Michael L, 1993. "Judicial Modification of Contracts between Sophisticated Parties: A More Complete View of Incomplete Contracts and Their Breach," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 9(2), pages 230-55, October.
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Citations

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Cited by:
  1. Schmitz, Patrick W., 2002. "On simple contracts, renegotiation under asymmetric information, and the hold-up problem," MPRA Paper 12530, University Library of Munich, Germany.
  2. Schmitz, Patrick W., 2000. "Book Review of “On Voting: a public choice approach” (Tullock, 1998)," MPRA Paper 6972, University Library of Munich, Germany.
  3. Schmitz, Patrick W. & Sliwka, Dirk, 1998. "Die Bedeutung von privater Information für Vertragsbeziehungen zwischen Käufern und Verkäufern," MPRA Paper 6941, University Library of Munich, Germany.
  4. Schmitz, Patrick W., 2002. "Simple contracts, renegotiation under asymmetric information, and the hold-up problem," European Economic Review, Elsevier, Elsevier, vol. 46(1), pages 169-188, January.

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