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Describability and Agency Problems

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Author Info

  • Luca Anderlini

    (St. John's College, Cambridge)

  • Leonardo Felli

    (London School of Economics)

Abstract

This paper suggests a reason, other than asymmetric information, why agency contracts are not explicitly contingent on the agent's performance or actions. Two ingredients are essential to this reason. The first is the written form that contracts are required to take to be enforceable. The second is a form of discontinuity in the parties' preferences and in the technology that transforms actions into a (probabilistic) outcome. We show that under these conditions the chosen contract may not be explicitly contigent on the agent's action although, in principle, such actions are contractible and observable to all parties to the contract, court included.

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File URL: http://128.118.178.162/eps/game/papers/9511/9511001.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Game Theory and Information with number 9511001.

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Length: 32 pages
Date of creation: 15 Nov 1995
Date of revision: 20 Sep 1996
Handle: RePEc:wpa:wuwpga:9511001

Note: Type of Document - LaTeX; prepared on IBM PC ; to print on PostScript 600DPI; pages: 32; figures: included
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Web page: http://128.118.178.162

Related research

Keywords: Acency Problems; Written Contracts; Incomplete Contracts; Hard-to-describe Actions and Outcomes;

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References

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  1. Oliver Hart & John Moore, 1985. "Incomplete Contracts and Renegotiation," Working papers 367, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-58, December.
  3. Anderlini, L. & Felli, L., 1995. "Endogenous Agency Problems," Papers 200, Cambridge - Risk, Information & Quantity Signals.
  4. Anderlini, Luca & Felli, Leonardo, 1994. "Incomplete Written Contracts: Undescribable States of Nature," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 1085-1124, November.
  5. Grossman, Sanford J & Hart, Oliver, 1985. "The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration," CEPR Discussion Papers 70, C.E.P.R. Discussion Papers.
  6. Matthews, Steven A, 1995. "Renegotiation of Sales Contracts," Econometrica, Econometric Society, vol. 63(3), pages 567-89, May.
  7. Grossman, Sanford J & Hart, Oliver D, 1983. "An Analysis of the Principal-Agent Problem," Econometrica, Econometric Society, vol. 51(1), pages 7-45, January.
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Citations

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Cited by:
  1. David A. Miller & Kareen Rozen, 2011. "Optimally Empty Promises and Endogenous Supervision," Levine's Working Paper Archive 786969000000000270, David K. Levine.
  2. Al-Najjar, Nabil I. & Anderlini, Luca & Felli, Leonardo, 2002. "Unforeseen Contingencies," CEPR Discussion Papers 3271, C.E.P.R. Discussion Papers.
  3. David A. Miller & Kareen Rozen, 2011. "We study optimal contracting in team settings, featuring stylized aspects of production environments with complex tasks. Agents have many opportunities to shirk, task-level monitoring is needed to pro," Cowles Foundation Discussion Papers 1823, Cowles Foundation for Research in Economics, Yale University, revised Jun 2012.
  4. Anderlini, Luca & Felli, Leonardo, 2004. "Bounded rationality and incomplete contracts," Research in Economics, Elsevier, vol. 58(1), pages 3-30, March.
  5. Shurojit Chatterji & Dragan Filipovich, 2004. "Ambiguous Contracting: Natural Language and Judicial Interpretation," Econometric Society 2004 North American Winter Meetings 419, Econometric Society.
  6. Fares, M’hand, 2005. "Quels fondements à l’incomplétude des contrats?," L'Actualité Economique, Société Canadienne de Science Economique, vol. 81(3), pages 535-555, Septembre.

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