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Costly contingent contracts

Anderlini, Luca and Felli, Leonardo (1996) Costly contingent contracts. . Suntory and Toyota International Centres for Economics and Related Disciplines, London, UK.

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Abstract

We identify and investigate the basic ?hold-up? problem which arises whenever each party to a contingent contract has to pay some ex-ante cost for the contract to become feasible. We then proceed to show that, under plausible circumstances, a ?contractual solution? to this hold-up problem is not available. This is because a contractual solution to the hold-up problem typically entails writing a ?contract over a contract? which generates a fresh set of ex-ante costs, and hence is associated with a new hold-up problem. We conclude the paper investigating two applications of our results to a static and to a dynamic principal-agent model.

Item Type: Monograph (Discussion Paper)
Official URL: http://sticerd.lse.ac.uk/
Additional Information: © 1996 Luca Anderlini, Leonardo Felli
Divisions: Financial Markets Group
STICERD
Economics
Subjects: H Social Sciences > HB Economic Theory
Date Deposited: 28 Feb 2008
Last Modified: 13 Sep 2024 19:37
URI: http://eprints.lse.ac.uk/id/eprint/3598

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