IDEAS home Printed from https://ideas.repec.org/a/oup/restud/v73y2006i4p849-868.html
   My bibliography  Save this article

Undescribable Events

Author

Listed:
  • 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.

Suggested Citation

  • Nabil I. Al-Najjar & Luca Anderlini & Leonardo Felli, 2006. "Undescribable Events," Review of Economic Studies, Oxford University Press, vol. 73(4), pages 849-868.
  • Handle: RePEc:oup:restud:v:73:y:2006:i:4:p:849-868
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1111/j.1467-937X.2006.00399.x
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Andrew Postlewaite, 2007. "Courts of Law and Unforeseen Contingencies," Journal of Law, Economics, and Organization, Oxford University Press, vol. 23(3), pages 662-684, October.
    2. Aghion, Philippe & Tirole, Jean, 1994. "Formal and Real Authority in Organizations," IDEI Working Papers 37, Institut d'Économie Industrielle (IDEI), Toulouse.
    3. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
    4. Al-Najjar, Nabil I. & Anderlini, Luca & Felli, Leonardo, 2002. "Unforeseen Contingencies," CEPR Discussion Papers 3271, C.E.P.R. Discussion Papers.
    5. Dekel, Eddie & Lipman, Barton L. & Rustichini, Aldo, 1998. "Recent developments in modeling unforeseen contingencies," European Economic Review, Elsevier, vol. 42(3-5), pages 523-542, May.
    6. 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.
    7. Pierpaolo Battigalli & Giovanni Maggi, 2002. "Rigidity, Discretion, and the Costs of Writing Contracts," American Economic Review, American Economic Association, vol. 92(4), pages 798-817, September.
    8. Al-Najjar, Nabil I. & Casadesus-Masanell, Ramon & Ozdenoren, Emre, 2003. "Probabilistic representation of complexity," Journal of Economic Theory, Elsevier, vol. 111(1), pages 49-87, July.
    9. Luca Anderlini & Leonardo Felli, 1994. "Incomplete Written Contracts: Undescribable States of Nature," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 1085-1124.
    10. Mark Machina, 2004. "Almost-objective uncertainty," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 24(1), pages 1-54, July.
    11. Partha Dasgupta & Douglas Gale & Oliver Hart & Eric Maskin (ed.), 1992. "Economic Analysis of Markets and Games: Essays in Honor of Frank Hahn," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262541599.
    12. Raghuram G. Rajan & Luigi Zingales, 1998. "Power in a Theory of the Firm," The Quarterly Journal of Economics, Oxford University Press, vol. 113(2), pages 387-432.
    13. Jean Tirole, 1999. "Incomplete Contracts: Where Do We Stand?," Econometrica, Econometric Society, vol. 67(4), pages 741-782, July.
    14. Ilya Segal, 1999. "Complexity and Renegotiation: A Foundation for Incomplete Contracts," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 57-82.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lang, Matthias, 2019. "Communicating subjective evaluations," Journal of Economic Theory, Elsevier, vol. 179(C), pages 163-199.
    2. Azar, Pablo D. & Micali, Silvio, 2018. "Computational principal agent problems," Theoretical Economics, Econometric Society, vol. 13(2), May.
    3. Andrew Postlewaite, 2007. "Courts of Law and Unforeseen Contingencies," Journal of Law, Economics, and Organization, Oxford University Press, vol. 23(3), pages 662-684, October.
    4. 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.
    5. Anderlini, Luca & Felli, Leonardo & Riboni, Alessandro, 2020. "Legal efficiency and consistency," European Economic Review, Elsevier, vol. 121(C).
    6. 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.
    7. 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.
    8. Mehand 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.
    9. Shu-Heng Chen & Ragupathy Venkatachalam, 2017. "Information aggregation and computational intelligence," Evolutionary and Institutional Economics Review, Springer, vol. 14(1), pages 231-252, June.
    10. Anderlini, Luca & Felli, Leonardo, 2004. "Bounded rationality and incomplete contracts," Research in Economics, Elsevier, vol. 58(1), pages 3-30, March.
    11. Farzad Pourbabaee, 2021. "High Dimensional Decision Making, Upper and Lower Bounds," Papers 2105.00545, arXiv.org.
    12. Matthias Lang, 2020. "Mechanism Design with Narratives," CESifo Working Paper Series 8502, CESifo.
    13. Sarah Auster, 2011. "Asymmetric Awareness and Moral Hazard," Economics Working Papers ECO2011/, European University Institute.
    14. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nabil Al-Najjar & Luca Anderlini & Leonardo Felli, 2003. "Undescribable Contingencies," Discussion Papers 1370, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    2. Anderlini, Luca & Felli, Leonardo, 2004. "Bounded rationality and incomplete contracts," Research in Economics, Elsevier, vol. 58(1), pages 3-30, March.
    3. Andrew Postlewaite, 2007. "Courts of Law and Unforeseen Contingencies," Journal of Law, Economics, and Organization, Oxford University Press, vol. 23(3), pages 662-684, October.
    4. 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.
    5. Eduard Marinov, 2016. "The 2016 Nobel Prize in Economics," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 6, pages 97-149.
    6. Andreas Roider, 2006. "Delegation of Authority as an Optimal (In)Complete Contract," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 162(3), pages 391-411, September.
    7. Lewis A. Kornhauser & W. Bentley MacLeod, 2012. "Contracts between Legal Persons," Introductory Chapters, in: Robert Gibbons & John Roberts (ed.),The Handbook of Organizational Economics, Princeton University Press.
    8. Committee, Nobel Prize, 2016. "Oliver Hart and Bengt Holmström: Contract Theory," Nobel Prize in Economics documents 2016-1, Nobel Prize Committee.
    9. Patrick W. Schmitz, 2006. "Information Gathering, Transaction Costs, and the Property Rights Approach," American Economic Review, American Economic Association, vol. 96(1), pages 422-434, March.
    10. Bester, Helmut, 2002. "Externalities and the Allocation of Decision Rights in the Theory of the Firm," CEPR Discussion Papers 3276, C.E.P.R. Discussion Papers.
    11. Gersbach, Hans & Haller, Hans, 2020. "On efficient firm formation," Mathematical Social Sciences, Elsevier, vol. 107(C), pages 1-12.
    12. Oriol Carbonell-Nicolau & Diego Comin, 2005. "Testing Out Contractual Incompleteness: Evidence from Soccer," Departmental Working Papers 200501, Rutgers University, Department of Economics.
    13. Patrick Bolton & Antoine Faure-Grimaud, 2010. "Satisficing Contracts," Review of Economic Studies, Oxford University Press, vol. 77(3), pages 937-971.
    14. Lorenzo Casaburi & Valeria Gattai, 2009. "Why FDI? An Empirical Assessment Based on Contractual Incompleteness and Dissipation of Intangible Assets," Working Papers 164, University of Milano-Bicocca, Department of Economics, revised Jul 2009.
    15. Chatterjee Kalyan & Chiu Y. Stephen, 2007. "When Does Competition Lead to Efficient Investments?," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-39, July.
    16. Liliana Basile & Raffaele Trani, 2008. "Incomplete Contracts Modelling," Metroeconomica, Wiley Blackwell, vol. 59(3), pages 347-370, July.
    17. Yeon-Koo Che & József Sákovics, 2004. "A Dynamic Theory of Holdup," Econometrica, Econometric Society, vol. 72(4), pages 1063-1103, July.
    18. Schmitz, Patrick W, 2001. "The Hold-up Problem and Incomplete Contracts: A Survey of Recent Topics in Contract Theory," Bulletin of Economic Research, Wiley Blackwell, vol. 53(1), pages 1-17, January.
    19. Makoto Hanazono, 2004. "Holdup with Subsidized Investment," Econometric Society 2004 Far Eastern Meetings 640, Econometric Society.
    20. Bernard Baudry & Bruno Tinel, 2003. "Une analyse théorique des fondements et du fonctionnement de la relation d'autorité intrafirme," Post-Print halshs-00270902, HAL.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:restud:v:73:y:2006:i:4:p:849-868. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press or Christopher F. Baum (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.