Incompleteness as a Constraint in Contract Design
Bureau of Econ. & Bus. Research Paper No. 00-0113
Posted: 29 Nov 2001
Date Written: July 2000
Abstract
We develop a model that encompasses both the incomplete contracts that are used in practice and the idealized complete contracts that address all contingencies. The objectives of the paper are to (i) examine the extent of the inefficiency caused by the constraint of contractual incompleteness; (ii) to identify properties of agents' preferences that determine whether or not incompleteness causes inefficiency; and (iii) to analyze the implications of the incompleteness constraint on optimal contracts in principal-agent and bilateral trade models.
Suggested Citation: Suggested Citation
Krasa, Stefan and Williams, Steven R., Incompleteness as a Constraint in Contract Design (July 2000). Bureau of Econ. & Bus. Research Paper No. 00-0113, Available at SSRN: https://ssrn.com/abstract=239471