IDEAS home Printed from https://ideas.repec.org/p/roc/rocher/477.html
   My bibliography  Save this paper

Optimal Contracts under Generalized Verifiability Correspondences

Author

Abstract

Before playing a game, the players may sign a contract that prescibes not to take some actions. Following the methodology introduced in Bernheim and Whinston (1998), henceforth BW, this paper models verifiability as a correspondence mapping actually played actions that cannot be ruled out by a court. BW characterize optimal contracts in various settings both static and sequential, and show instances where optimal contracts must necessarily leave some verifiable prescriptions unspecified. This paper focuses on static settings. We extend the line of research of BW by considering also non-partitional and non-product correspondences, and by introducing different liability regimes in the framework. A complete characterization of optimal contracts is derived. We identify instances where, because of liability constraints, the optimal contracts must explicitely include unverifiable prescriptions. In some cases, the optimal outcome may be achieved only by signing a contract that cannot be enforced. Our analysis may be of some relevance for the foundations of incomplete contracts, as it shows that it is not necessarily the case that the players should sign an incomplete contract when complete contracts are unenforceable.

Suggested Citation

  • Francesco Squintani, 2001. "Optimal Contracts under Generalized Verifiability Correspondences," RCER Working Papers 477, University of Rochester - Center for Economic Research (RCER).
  • Handle: RePEc:roc:rocher:477
    as

    Download full text from publisher

    File URL: http://rcer.econ.rochester.edu/RCERPAPERS/rcer_477.pdf
    File Function: full text
    Download Restriction: None

    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:roc:rocher:477. 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: (Richard DiSalvo). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.