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Undescribable Events

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  • Nabil I. Al-Najjar
  • Luca Anderlini
  • Leonardo Felli

Abstract

We develop a model of undescribable events. Examples of events that are well understood by economic agents but are prohibitively difficult to describe in advance abound in real life. This notion has also pervaded a substantial amount of economic literature. Undescribable events in our model are understood by economic agents-their consequences and probabilities are known-but are such that every finite description of such events necessarily leaves out relevant features that have a non-negligible impact on the parties' expected utilities. We illustrate our results using a simple coinsurance problem as a backdrop. When the only uncertainty faced by the two agents is an undescribable event the optimal finite coinsurance contract is no contract at all. Copyright 2006, Wiley-Blackwell.

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  • Nabil I. Al-Najjar & Luca Anderlini & Leonardo Felli, 2006. "Undescribable Events," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(4), pages 849-868.
    • Handle: RePEc:oup:restud:v:73:y:2006:i:4:p:849-868
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    File URL: http://hdl.handle.net/10.1111/j.1467-937X.2006.00399.x
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    References listed on IDEAS

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    1. Andrew Postlewaite, 2007. "Courts of Law and Unforeseen Contingencies," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 23(3), pages 662-684, October.
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    Cited by:

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    2. David A. Miller & Kareen Rozen, 2011. "Optimally Empty Promises and Endogenous Supervision," Cowles Foundation Discussion Papers 1823, Cowles Foundation for Research in Economics, Yale University, revised Jun 2012.
    3. Al-Najjar, Nabil I., 2008. "Large games and the law of large numbers," Games and Economic Behavior, Elsevier, vol. 64(1), pages 1-34, September.
    4. M’hand Fares, 2011. "Can a specific performance contract solve the hold-up problem? [Un contrat à obligation d’exécution peut-il résoudre le problème du hold-up ?]," Post-Print hal-02647357, HAL.
    5. Liang Guo, 2021. "Partial Unraveling and Strategic Contract Timing," Management Science, INFORMS, vol. 67(12), pages 7719-7736, December.
    6. Andrew Postlewaite, 2007. "Courts of Law and Unforeseen Contingencies," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 23(3), pages 662-684, October.
    7. Kumabe, Masahiro & Mihara, H. Reiju, 2011. "Computability of simple games: A complete investigation of the sixty-four possibilities," Journal of Mathematical Economics, Elsevier, vol. 47(2), pages 150-158, March.
    8. Lang, Matthias, 2019. "Communicating subjective evaluations," Journal of Economic Theory, Elsevier, vol. 179(C), pages 163-199.
    9. Anderlini, Luca & Felli, Leonardo, 2004. "Bounded rationality and incomplete contracts," Research in Economics, Elsevier, vol. 58(1), pages 3-30, March.
    10. George Georgiadis & Steven A. Lippman & Christopher S. Tang, 2014. "Project design with limited commitment and teams," RAND Journal of Economics, RAND Corporation, vol. 45(3), pages 598-623, September.
    11. Anderlini, Luca & Felli, Leonardo & Riboni, Alessandro, 2020. "Legal efficiency and consistency," European Economic Review, Elsevier, vol. 121(C).
    12. Shu-Heng Chen & Ragupathy Venkatachalam, 2017. "Information aggregation and computational intelligence," Evolutionary and Institutional Economics Review, Springer, vol. 14(1), pages 231-252, June.
    13. Sarah Auster, 2011. "Asymmetric Awareness and Moral Hazard," Economics Working Papers ECO2011/, European University Institute.
    14. Matthias Lang, 2020. "Mechanism Design with Narratives," CESifo Working Paper Series 8502, CESifo.
    15. Farzad Pourbabaee, 2021. "High Dimensional Decision Making, Upper and Lower Bounds," Papers 2105.00545, arXiv.org.
    16. Pourbabaee, Farzad, 2021. "High dimensional decision making, upper and lower bounds," Economics Letters, Elsevier, vol. 204(C).

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