Endogenous Verifiability and Optimality in Agency: A non-contingent approach
In the context of a principal-agent model where verification of an agent’s effort is endogenously determined through strategic interactions between contracting parties, we derive a necessary and suficient condition to achieve the first best with a non-contingent or incomplete contract. These conditions relate the Principal’s benefit, the Agent’s cost, the probability of winning and the cost of litigation. Also, these conditions are found to be more general than the ones established in Ishiguro (2002) within a similar setup.
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- Justin Zhang & Tian Zhu, 2000. "Verifiability, Incomplete Contracts and Dispute Resolution," European Journal of Law and Economics, Springer, vol. 9(3), pages 281-290, May.
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- Che, Y.K. & Hausch, D.B., 1997. "Cooperative Investments and the Value of Contracting," Working papers 9714, Wisconsin Madison - Social Systems.
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- Edlin, Aaron S & Reichelstein, Stefan, 1996. "Holdups, Standard Breach Remedies, and Optimal Investment," American Economic Review, American Economic Association, vol. 86(3), pages 478-501, June.
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- Murat Usman, 2002. "Verifiability and Contract Enforcement: A Model with Judicial Moral Hazard," Journal of Law, Economics, and Organization, Oxford University Press, vol. 18(1), pages 67-94, April. Full references (including those not matched with items on IDEAS)
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