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Incentives for contract designers and contractual design

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  • Rodivilov, Alexander

Abstract

This paper examines the optimal provision of incentives for contract designers and the implications for contractual design. A buyer hires an agent to draft a contract for a seller. The buyer-seller contract is incomplete because the ex-ante specified design might not be appropriate ex-post. The degree of contract incompleteness is endogenously determined by the effort exerted by the agent, who can manipulate the buyer’s beliefs because his effort is not observable (moral hazard), and because he is better informed at the outset (adverse selection). We discuss how the asymmetric information generated during the contract drafting stage explains some empirical observations and contracting phenomena in the construction industry and procurement.

Suggested Citation

  • Rodivilov, Alexander, 2026. "Incentives for contract designers and contractual design," International Journal of Industrial Organization, Elsevier, vol. 104(C).
    • Handle: RePEc:eee:indorg:v:104:y:2026:i:c:s0167718725001109
    DOI: 10.1016/j.ijindorg.2025.103244
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    Keywords

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    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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