1,721,087 research outputs found
Transaction costs and the robustness of the coase theorem
No full textThis paper explores the extent to which ex ante transaction costs may lead to failures of the Coase Theorem. In particular we identify the basic 'hold-up problem' that arises whenever the parties to a Coasian negotiation have to pay ex ante costs for the negotiation to take place. We then show that a 'Coasian solution' to this problem is not available: a Coasian solution typically entails a negotiation about the payment of the costs associated with the future negotiation, which in turn is associated with a fresh set of ex ante costs, and hence a new hold-up problem. © Royal Economic Society 2006
Costly bargaining and renegotiation
No full textWe identify the inefficiencies that arise when negotiation between two parties takes place in the presence of transaction costs. First, for some values of these costs it is efficient to reach an agreement but the unique equilibrium outcome is one in which agreement is never reached. Secondly, even when there are equilibria in which an agreement is reached, we find that the model always has an equilibrium in which agreement is never reached, as well as equilibria in which agreement is delayed for an arbitrary length of time.Finally, the only way in which the parties can reach an agreement in equilibrium is by using inefficient punishments for (some of) the opponent's deviations. We argue that this implies that, when the parties are given the opportunity to renegotiate out of these inefficiencies, the only equilibrium outcome which survives is the one in which agreement is never reached, regardless of the value of the transaction costs
Costly bargaining and renegotiation
No full textWe identify the inefficiencies that arise when negotiation between two parties takes place in the presence of transaction costs. First, for some values of these costs it is efficient to reach an agreement but the unique equilibrium outcome is one in which agreement is never reached. Secondly, even when there are equilibria in which an agreement is reached, we find that the model always has an equilibrium in which agreement is never reached, as well as equilibria in which agreement is delayed for an arbitrary length of time. Finally, the only way in which the parties can reach an agreement in equilibrium is by using inefficient punishments for (some of) the opponent's deviations. We argue that this implies that, when the parties are given the opportunity to renegotiate out of these inefficiencies, the only equilibrium outcome that survives is the one in which agreement is never reached, regardless of the value of the transaction costs
Incomplete Written Contracts: Undescribable States of Nature
No full textThis paper explores the extent to which the incompleteness of contracts can be attributed to their formal nature: The form, usually written, that contracts are required to take to be enforceable in a court of law by legal prescription, common practice, or simply the contracting parties’ will. We model the formal nature of state-contingent contracts as the requirement that the mapping from states of the world to the corresponding outcomes must be of an algorithmic nature. It is shown that such algorithmic nature, although by itself is not enough to generate incomplete contracts, when paired with a similar restriction on the contracting parties’ selection process yields endogenously incomplete optimal contracts. © 1994 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology
La ricostruzione della I^ commissura interdigitale mediante lembi a distanza
No full textLa ricostruzione della I^ commissura interdigitale mediante lembi a distanza
Incomplete contracts and complexity costs
No full textThis paper investigates, in a simple risk-sharing framework, the extent to which the incompleteness of contracts could be attributed to the complexity costs associated with the writing and the implementation of contracts. We show that, given any measure of complexity in a very general class, it is possible to find simple contracting problems such that, when complexity costs are explicitly taken into account, the contracting parties optimally choose an incomplete contract which coincides with the 'default' division of surplus. Optimal contracts with complexity costs are constrained efficient in our model. We therefore interpret our results as saying that, in the absence of a strategic role for complexity costs, their effect is entirely determined by their size relative to the size of payoffs
Bounded rationality and incomplete contracts
No full textThis paper explores the link between boundedly rational behavior and incomplete contracts. The bounded rationality of the agents in our world is embodied in a constraint that the contracts they write must be algorithmic in nature. We start with a definition of contract incompleteness that seems both appealing and widely applicable. Our first task is then to show that, by itself, the algorithmic nature of contracts is not enough to generate genuinely incomplete contracts in equilibrium. As in Anderlini and Felli [Q. J. Econom. 109 (1994) 1085], we call this the Approximation Result. We then proceed to consider contractual situations in which the complexity costs of a contract are explicitly taken into account. We consider a broad (axiomatically defined) class of complexity measures and in this framework we show that incomplete contracts obtain in equilibrium. We also discuss extensively some recent literature directly related to the results reported here. © 2004 University of Venice. Published by Elsevier Ltd. All rights reserved
Describability and agency problems
No full textThis 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 contingent on the agent's actions although, in principle, such actions are contractible and observable to all parties to the contract, court included
Agency Structure and Firm Culture: OSHA, EPA, and the Steel Industry
No full textWe study a contracting model with unforeseen contingencies in which the court is an active player. Ex ante, the contracting parties cannot include the risky unforeseen contingencies in the contract they draw up. Ex post, the court observes whether an unforeseen contingency occurred and decides whether to void or uphold the contract. If the contract is voided by the court, the parties can renegotiate a new agreement ex post. There are two effects of a court that voids contracts. The parties' incentives to undertake relationship-specific investment are reduced, and the parties enjoy greater insurance against the unforeseen contingencies that the ex ante contract cannot account for. In this context, we fully characterize the optimal decision rule for the court. The behavior of the optimal court is determined by the trade-off between the need for incentives and the gains from insurance that voiding in some circumstances offers to the agents. © The Author 2006. Published by Oxford University Press on behalf of Yale University. All rights reserved
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