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On partial contracting

Author

Listed:
  • Mathias Dewatripont
  • Philippe Aghion
  • Patrick Rey

Abstract

This paper investigates contracting situations where giving away some control rights enhances both the donor's and the receiver's incentives to cooperate in the future. We define a partial contracting framework with nonverifiable actions for which either control is contractible (contractible control actions) or the right to transfer control ex post to another party is contractible (transferable control actions). Under incomplete information, when control over particular actions is transferable but not contractible, it can be optimal to give one party the right to transfer control over a particular action to the other party, in order for that party to build a reputation regarding her willingness to cooperate in the future. © 2002 Elsevier Science B.V. All rights reserved.

Suggested Citation

  • Mathias Dewatripont & Philippe Aghion & Patrick Rey, 2002. "On partial contracting," ULB Institutional Repository 2013/9627, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:ulb:ulbeco:2013/9627
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    Cited by:

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    2. Axel Gautier & Dimitri Paolini, 2007. "Delegation and Information Revelation," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 163(4), pages 574-597, December.
    3. Matthew Ellman, 2006. "Specificity Revisited: The Role of Cross-Investments," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 22(1), pages 234-257, April.
    4. Helmut Bester, 2009. "Externalities, communication and the allocation of decision rights," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 41(2), pages 269-296, November.
    5. Makoto Hanazono, 2004. "Holdup with Subsidized Investment," Econometric Society 2004 Far Eastern Meetings 640, Econometric Society.
    6. Patrick Legros & Andrew F. Newman, 2008. "Competing for Ownership," Journal of the European Economic Association, MIT Press, vol. 6(6), pages 1279-1308, December.
    7. Matthias Kräkel, 2017. "Authority and Incentives in Organizations," Scandinavian Journal of Economics, Wiley Blackwell, vol. 119(2), pages 295-311, April.
    8. Patrick W. Schmitz, 2005. "Allocating Control in Agency Problems with Limited Liability and Sequential Hidden Actions," RAND Journal of Economics, The RAND Corporation, vol. 36(2), pages 318-336, Summer.
    9. George J. Mailath & Volker Nocke & Andrew Postlewaite, 2004. "Business Strategy, Human Capital, and Managerial Incentives," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(4), pages 617-633, December.
    10. Bester, Helmut, 2002. "Externalities and the Allocation of Decision Rights in the Theory of the Firm," CEPR Discussion Papers 3276, C.E.P.R. Discussion Papers.
    11. Felli, Leonardo & Koenen, Johannes & Stahl, Konrad O., 2011. "Competition and trust: Evidence from German car manufacturers," ZEW Discussion Papers 11-072, ZEW - Leibniz Centre for European Economic Research.
    12. Süssmuth Bernd & Wagner Stefan, 2012. "A Market’s Reward Scheme, Media Attention, and the Transitory Success of Managerial Change," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 232(3), pages 258-278, June.
    13. Lim, Wooyoung, 2014. "Communication in bargaining over decision rights," Games and Economic Behavior, Elsevier, vol. 85(C), pages 159-179.
    14. Xavier Martinez-Giralt & Rosella Nicolini, 2013. "Technological endowments in entrepreneurial partnerships," Computational and Mathematical Organization Theory, Springer, vol. 19(4), pages 601-621, December.
    15. Robert Evans, 2008. "Simple Efficient Contracts in Complex Environments," Econometrica, Econometric Society, vol. 76(3), pages 459-491, May.
    16. Tigran Melkonyan, 2014. "Decentralization, Incentive Contracts and the Effect of Distortions in Performance Measures," Manchester School, University of Manchester, vol. 82(6), pages 631-652, December.
    17. Philippe Aghion & Mathias Dewatripont & Patrick Rey, 2004. "Transferable Control," Journal of the European Economic Association, MIT Press, vol. 2(1), pages 115-138, March.
    18. Helmut Bester & Daniel Krähmer, 2008. "Delegation and incentives," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 664-682, September.
    19. Hoppe, Eva I. & Schmitz, Patrick W., 2010. "Public versus private ownership: Quantity contracts and the allocation of investment tasks," Journal of Public Economics, Elsevier, vol. 94(3-4), pages 258-268, April.
    20. Axel Gautier & Dimitri Paolini, 2009. "Delegation, externalities and organizational design," Economics Bulletin, AccessEcon, vol. 29(4), pages 2683-2692.
    21. Andreas Roider, 2009. "Delegation, Risk, and Project Scope," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 165(2), pages 193-209, June.
    22. Lucy White & Mark Williams, 2009. "Bargaining with imperfect enforcement," RAND Journal of Economics, RAND Corporation, vol. 40(2), pages 317-339, June.
    23. Fares, M’hand, 2005. "Quels fondements à l’incomplétude des contrats?," L'Actualité Economique, Société Canadienne de Science Economique, vol. 81(3), pages 535-555, Septembre.
    24. Lim, Wooyoung, 2012. "Selling authority," Journal of Economic Behavior & Organization, Elsevier, vol. 84(1), pages 393-415.
    25. Xavier Martinez-Giralt & Rosella Nicolini, 2003. "Partnership in Open Innovation," Working Papers 101, Barcelona School of Economics.

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