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Bait Contracts

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  • VierAy, Marie-Louise

Abstract

This paper explores contracting in the presence of ambiguity. It revisits Holmstrom's (1979) suffcient statistic result of when to condition a contract on an outside signal. It is shown that if the signal is ambiguous, in the sense that its probability distribution is unknown, then Holmstrom's result can be overturned. Specically, uninformative ambiguous signals can be valuable.

Suggested Citation

  • VierAy, Marie-Louise, 2009. "Bait Contracts," Queen's Economics Department Working Papers 273698, Queen's University - Department of Economics.
    • Handle: RePEc:ags:quedwp:273698
    DOI: 10.22004/ag.econ.273698
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    References listed on IDEAS

    as
    1. David S. Ahn, 2008. "Ambiguity Without a State Space," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 75(1), pages 3-28.
    2. Lopomo, Giuseppe & Rigotti, Luca & Shannon, Chris, 2011. "Knightian uncertainty and moral hazard," Journal of Economic Theory, Elsevier, vol. 146(3), pages 1148-1172, May.
    3. , & , & ,, 2006. "Optimal auctions with ambiguity," Theoretical Economics, Econometric Society, vol. 1(4), pages 411-438, December.
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    5. G. Carlier & L. Renou, 2006. "Debt contracts with ex-ante and ex-post asymmetric information: an example," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 28(2), pages 461-473, June.
    6. Mukerji, Sujoy, 1998. "Ambiguity Aversion and Incompleteness of Contractual Form," American Economic Review, American Economic Association, vol. 88(5), pages 1207-1231, December.
    7. Ghirardato, Paolo & Maccheroni, Fabio & Marinacci, Massimo, 2004. "Differentiating ambiguity and ambiguity attitude," Journal of Economic Theory, Elsevier, vol. 118(2), pages 133-173, October.
    8. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
    9. repec:dau:papers:123456789/7447 is not listed on IDEAS
    10. Levin, Dan & Ozdenoren, Emre, 2004. "Auctions with uncertain numbers of bidders," Journal of Economic Theory, Elsevier, vol. 118(2), pages 229-251, October.
    11. Tobias Adrian & Mark M. Westerfield, 2009. "Disagreement and Learning in a Dynamic Contracting Model," The Review of Financial Studies, Society for Financial Studies, vol. 22(10), pages 3873-3906, October.
    Full references (including those not matched with items on IDEAS)

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