Describability and agency problems
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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- Luca Anderlini & Leonardo Felli, 1993. "Incomplete Written Contracts: Endogenous Agency Problems (Revised version, 'Describability and Agency Problems', published in European Economic Review, vol.42 (1998), pp.35-59.)," STICERD - Theoretical Economics Paper Series /1993/267, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- Anderlini, L. & Felli, L., 1993.
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- 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.
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