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Gathering Information before Signing a Contract

  • Crémer, Jacques
  • Khalil, Fahad

After being offered a contract, an agent has the possibility to observe the state of nature. This enables him to refuse the contract in unfavorable states but burdens him with an observation cost. The authors show that the principal offers a contract in which the agent has no incentive to observe the state of nature and they explore its terms. Later, they show that the principal finds it profitable to organize competition between several agents, even though he has monopoly power and can push a single agent down to his reservation utility. Copyright 1992 by American Economic Association.

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Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 5.

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Date of creation: 1991
Date of revision:
Publication status: Published in American Economic Review, vol.�82, n°3, 1992, p.�566-578.
Handle: RePEc:ide:wpaper:1219
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  13. Blonski, Matthias & Spagnolo, Giancarlo, 2002. "Relational Contracts and Property Rights," CEPR Discussion Papers 3460, C.E.P.R. Discussion Papers.
  14. Bajari, Patrick & Tadelis, Steven, 2001. "Incentives versus Transaction Costs: A Theory of Procurement Contracts," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 387-407, Autumn.
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  26. Richard L. Fullerton & R. Preston McAfee, 1999. "Auctioning Entry into Tournaments," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 573-605, June.
  27. Franklin Allen, 1984. "Reputation and Product Quality," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 311-327, Autumn.
  28. Taylor, Curtis R, 1995. "Digging for Golden Carrots: An Analysis of Research Tournaments," American Economic Review, American Economic Association, vol. 85(4), pages 872-90, September.
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  30. Olivier Compte, 1998. "Communication in Repeated Games with Imperfect Private Monitoring," Econometrica, Econometric Society, vol. 66(3), pages 597-626, May.
  31. Maija Halonen, 2002. "Reputation And The Allocation Of Ownership," Economic Journal, Royal Economic Society, vol. 112(481), pages 539-558, July.
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