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Costly contingent contracts

Anderlini, Luca and Felli, Leonardo (1996) Costly contingent contracts. TE/1996/313. Suntory and Toyota International Centres for Economics and Related Disciplines, London School of Economics and Political Science, London, UK.

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Identification Number: TE/1996/313

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
Subjects: H Social Sciences > HB Economic Theory
Sets: Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Departments > Economics
Collections > LSE Financial Markets Group (FMG) Working Papers
Date Deposited: 28 Feb 2008
Last Modified: 27 Feb 2014 15:36
URI: http://eprints.lse.ac.uk/id/eprint/3598

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