IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Subjective ambiguity and moral hazard in a principal-agent model

  • Marcello Basili
  • Maurizio Franzini

It is suggested that individual behavior under ambiguity, or knightian uncertainty, may represent an alternative explanation for contractual incompleteness with respect to the traditional approach in terms of transactions costs. This paper aims at showing that the introduction of ambiguity in the economic analysis of contracts may be very fruitful. In particular, we analyze how ambiguity affects the optimal compensation scheme in a principal-agent framework, where the principal cannot observe the agent’s effort and, contrary to standard assumptions, is ambiguityaverse. Also, our model makes it possible to generalize the Mukerji (1998) approach to contractual incompleteness. In fact, it shows that incomplete contracts are costly and that, before reaching the conclusion that ambiguity leads to contractual incompleteness, their costs should be compared with those of complete contracts, other things being equal.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.dipecodir.it/upload/wp/pdf/wp64.pdf
Download Restriction: no

Paper provided by University of Rome La Sapienza, Department of Public Economics in its series Working Papers with number 64.

as
in new window

Length: 20
Date of creation: Feb 2002
Date of revision:
Handle: RePEc:sap:wpaper:wp64
Contact details of provider: Postal: Via Del Castro Laurenziano 9, 00161 Roma
Phone: +39 6 49766353
Fax: +39 6 4462040
Web page: http://www.dipecodir.it/

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Jürgen Eichberger & David Kelsey, 1999. "E-Capacities and the Ellsberg Paradox," Theory and Decision, Springer, vol. 46(2), pages 107-138, April.
  2. Mukerji, S., 1997. "Ambiguity aversion and incompleteness of contractual form," Discussion Paper Series In Economics And Econometrics 9715, Economics Division, School of Social Sciences, University of Southampton.
  3. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, March.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:sap:wpaper:wp64. 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: (Luisa Giuriato)

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.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.