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Describability and agency problems

  • Anderlini, Luca
  • Felli, Leonardo

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.

(This abstract was borrowed from another version of this item.)

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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 42 (1998)
Issue (Month): 1 (January)
Pages: 35-59

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Handle: RePEc:eee:eecrev:v:42:y:1998:i:1:p:35-59
Contact details of provider: Web page: http://www.elsevier.com/locate/eer

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  1. Anderlini, L. & Felli, L., 1995. "Endogenous Agency Problems," Papers 200, Cambridge - Risk, Information & Quantity Signals.
  2. Sanford Grossman & Oliver Hart, . "An Analysis of the Principal-Agent Problem," Rodney L. White Center for Financial Research Working Papers 15-80, Wharton School Rodney L. White Center for Financial Research.
  3. Steven A. Matthews, 1993. "Renegotiation of Sales Contracts," Discussion Papers 1051, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
  5. 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.
  6. Hardman Moore, John & Hart, Oliver, 1985. "Incomplete Contracts and Renegotiation," CEPR Discussion Papers 60, C.E.P.R. Discussion Papers.
  7. Oliver Hart & John Moore, 1988. "Property Rights and the Nature of the Firm," Working papers 495, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. 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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