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Describability and Agency Problems

  • Luca Anderlini

    (St. John's College, Cambridge)

  • Leonardo Felli

    (London School of Economics)

This paper suggests a reason, other than asymmetric information, why agency contracts are not explicitly contingent on the agent's performance or actions. Two ingredients are essential to this reason. The first is the written form that contracts are required to take to be enforceable. The second is a form of discontinuity in the parties' preferences and in the technology that transforms actions into a (probabilistic) outcome. We show that under these conditions the chosen contract may not be explicitly contigent on the agent's action although, in principle, such actions are contractible and observable to all parties to the contract, court included.

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Paper provided by EconWPA in its series Game Theory and Information with number 9511001.

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Length: 32 pages
Date of creation: 15 Nov 1995
Date of revision: 20 Sep 1996
Handle: RePEc:wpa:wuwpga:9511001
Note: Type of Document - LaTeX; prepared on IBM PC ; to print on PostScript 600DPI; pages: 32; figures: included
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Oliver Hart & Sanford Grossman, 1985. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Working papers 372, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Oliver Hart & John Moore, 1988. "Property Rights and the Nature of the Firm," Working papers 495, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Sanford Grossman & Oliver Hart, . "An Analysis of the Principal-Agent Problem," Rodney L. White Center for Financial Research Working Papers 15-80, Wharton School Rodney L. White Center for Financial Research.
  4. Luca Anderlini & Leonardo Felli, 1993. "Incomplete Written Contracts: Endogenous Agency Problems (Revised version, 'Describability and Agency Problems', published in European Economic Review, vol.42 (1998), pp.35-59.)," STICERD - Theoretical Economics Paper Series /1993/267, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  5. Anderlini, L. & Felli, L., 1993. "Incomplete Written Contracts: Undescribable States of Nature," Papers 183, Cambridge - Risk, Information & Quantity Signals.
  6. Matthews, Steven A, 1995. "Renegotiation of Sales Contracts," Econometrica, Econometric Society, vol. 63(3), pages 567-89, May.
  7. Hardman Moore, John & Hart, Oliver, 1985. "Incomplete Contracts and Renegotiation," CEPR Discussion Papers 60, C.E.P.R. Discussion Papers.
  8. Anderlini, L. & Felli, L., 1995. "Endogenous Agency Problems," Papers 200, Cambridge - Risk, Information & Quantity Signals.
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