Contractual Contingencies and Renegotiation
In a dynamic model of asymmetric information between the owner of a firm and a manager, we investigate the optimal set of contingencies on which an incentive contract should depend when renegotiation is possible. In particular, we characterize the circumstances in which the contracting parties find it desirable to deliberately restrict what the owner can monitor, thereby limiting the contractible contingencies. Our findings thus provide an endogenous explanation for contract simplicity, in contrast to those based on transactions costs or bounded rationality.
Year of publication: |
1995
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Authors: | Dewatripont, M. ; Maskin, E. |
Published in: |
RAND Journal of Economics. - The RAND Corporation, ISSN 0741-6261. - Vol. 26.1995, 4, p. 704-719
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Publisher: |
The RAND Corporation |
Saved in:
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