Speculative Contracts
We propose to view action-contingent contracts as bets, motivated by different prior beliefs between the contracting parties (rather than, say, as an instrument for overcoming moral hazard problems). Such differences in prior beliefs may arise from inherent biases such as over-optimism. Menus of contingent contracts that arise in principal-agent relationships are thus interpreted as a consequence of the principal's attempt to screen the agent's prior belief. Thus, an employer may offer his worker to choose between fixed-wage and profit-sharing schemes, in order to screen the worker's degree of optimism. We present a model of bilateral contracting which captures these ideas, characterize the optimal menu and apply it to a number of economic settings.
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| Date of creation: | 21 Nov 2005 |
| Date of revision: | |
| Handle: | RePEc:cla:levrem:784828000000000628 |
| Contact details of provider: | Web page: http://www.dklevine.com/
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References listed on IDEAS
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- Armstrong, Mark, 1996. "Nonlinear pricing with imperfectly informed consumers," MPRA Paper 36332, University Library of Munich, Germany.
- Hanming Fang & Giuseppe Moscarini, 2004.
"Morale Hazard,"
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- Hanming Fang & Giuseppe Moscarini, 2003. "Morale Hazard," Cowles Foundation Discussion Papers 1422, Cowles Foundation for Research in Economics, Yale University.
- Augustin Landier & David Thesmar, 2009. "Financial Contracting with Optimistic Entrepreneurs," Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 117-150, January.
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- Courty, Pascal & Li, Hao, 2000.
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Wiley Blackwell, vol. 67(4), pages 697-717, October.
- Pascal Courty & Li Hao, 1997. "Sequential screening," Economics Working Papers 224, Department of Economics and Business, Universitat Pompeu Fabra.
- Kfir Eliaz & Ran Spiegler, 2004.
"Contracting with Diversely Naïve Agents,"
Levine's Bibliography
122247000000000530, UCLA Department of Economics.
- Kfir Eliaz & Ran Spiegler, 2006. "Contracting with Diversely Naive Agents," Review of Economic Studies, Oxford University Press, vol. 73(3), pages 689-714.
- Eliaz, Kfir & Spiegler, Ran, 2004. "Contracting with Diversely Naive Agents," CEPR Discussion Papers 4573, C.E.P.R. Discussion Papers.
- Baron, David P. & Besanko, David, 1984. "Regulation and information in a continuing relationship," Information Economics and Policy, Elsevier, vol. 1(3), pages 267-302.
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