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Incomplete written contracts: endogenous agency problems

Anderlini, Luca and Felli, Leonardo (1993) Incomplete written contracts: endogenous agency problems. TE/1993/267. Suntory and Toyota International Centres for Economics and Related Disciplines, London School of Economics and Political Science, London, UK.

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Abstract

This paper suggests a reason, other than asymmetric formation, why agency contracts are not explicitly contingent on the contracting parties' performances or actions. This reason is the formal nature of contracts: 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 by the contracting parties' will. We model the formal nature of contracts as the requirement that the mapping from the domain of the contract into the corresponding remunerations must be of an algorithmic nature. We show that there exist situations in which the chosen contract cannot be explicitly contingent on the parties' performance although, in principle, such performances are contractible and observable to all parties to the contract, court included. This approach allows us to interpret agency contracts as incomplete contracts. We relate this incompleteness either to the form of the parties' preferences or to the shape of the technological relationship through which the parties' contractible performances are transformed into contractible outcomes.

Item Type: Monograph (Discussion Paper)
Official URL: http://sticerd.lse.ac.uk/
Additional Information: © 1993 Luca Anderlini, Leonardo Felli
Library of Congress subject classification: H Social Sciences > HD Industries. Land use. Labor
K Law > K Law (General)
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
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: TE/1993/267
Date Deposited: 28 Feb 2008
URL: http://eprints.lse.ac.uk/3602/

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