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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.

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
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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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    2. 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.
    3. Al-Najjar, Nabil & Anderlini, Luca & Felli, Leonardo, 2002. "Unforeseen contingencies," LSE Research Online Documents on Economics 3578, London School of Economics and Political Science, LSE Library.
    4. 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.
    5. 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.
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    9. 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.
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    Cited by:

    1. Matthias Lang, 2012. "Communicating Subjective Evaluations," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2012_14, Max Planck Institute for Research on Collective Goods, revised Apr 2017.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    6. Anderlini, Luca & Felli, Leonardo, 2004. "Bounded rationality and incomplete contracts," Research in Economics, Elsevier, vol. 58(1), pages 3-30, March.
    7. Sarah Auster, 2011. "Asymmetric Awareness and Moral Hazard," Economics Working Papers ECO2011/, European University Institute.

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