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Satisficing contracts

Bolton, Patrick and Faure-Grimaud, Antoine (2010) Satisficing contracts. Review of Economic Studies, 77 (3). pp. 937-971. ISSN 0034-6527

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Identification Number: 10.1111/j.1467-937X.2009.00597.x


We propose a model of equilibrium contracting between two agents who are “boundedly rational” in the sense that they face time costs of deliberating current and future transactions. We show that equilibrium contracts may be incomplete and assign control rights: they may leave some enforceable future transactions unspecified and instead specify which agent has the right to decide these transactions. Control rights allow the controlling agent to defer time-consuming deliberations on those transactions to a later date, making her less inclined to prolong negotiations over an initial incomplete contract. Still, agents tend to resolve conflicts up-front by writing more complete initial contracts. A more complete contract can take the form of either a finer adaptation to future contingencies, or greater coarseness. Either way, conflicts among contracting agents tend to result in excessively complete contracts in the sense that the maximization of joint payoffs would result in less complete contracts.

Item Type: Article
Official URL:
Additional Information: © 2010 OUP
Divisions: Economics
Subjects: H Social Sciences > HB Economic Theory
Date Deposited: 11 Apr 2011 15:30
Last Modified: 16 May 2024 01:07

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