Contractual Contingencies and Renegotiation
In a dynamic model of asymmetric information between the owner of a firm and a manager, we investigate the optimal set of contingencies on which an incentive contract should depend when renegotiation is possible. In particular, we characterize the circumstances in which the contracting parties find it desirable to deliberately restrict what the owner can monitor, thereby limiting the contractible contingencies. Our findings thus provide an endogenous explanation for contract simplicity, in contrast to those based on transactions costs or bounded rationality.
Volume (Year): 26 (1995)
Issue (Month): 4 (Winter)
|Contact details of provider:|| Web page: http://www.rje.org|
|Order Information:||Web: https://editorialexpress.com/cgi-bin/rje_online.cgi|
When requesting a correction, please mention this item's handle: RePEc:rje:randje:v:26:y:1995:i:winter:p:704-719. 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: ()
If references are entirely missing, you can add them using this form.