(This abstract was borrowed from another version of this item.)"> (This abstract was borrowed from another version of this item.)">
Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/kap/theord/v46y1999i1p23-50.html
   My bibliography  Save this article

Incomplete Contracts and Complexity Costs

Author

Listed:
  • Luca Anderlini
  • Leonardo Felli
Abstract
This 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.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Luca Anderlini & Leonardo Felli, 1999. "Incomplete Contracts and Complexity Costs," Theory and Decision, Springer, vol. 46(1), pages 23-50, February.
    • Handle: RePEc:kap:theord:v:46:y:1999:i:1:p:23-50
    DOI: 10.1023/A:1004917722235
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1023/A:1004917722235
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1023/A:1004917722235?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hart, Oliver D & Moore, John, 1988. "Incomplete Contracts and Renegotiation," Econometrica, Econometric Society, vol. 56(4), pages 755-785, July.
    2. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-1158, December.
    3. Luca Anderlini & Leonardo Felli, "undated". "Costly Coasian Contracts," Penn CARESS Working Papers c5b2efc4326ca8bb8162440d6, Penn Economics Department.
    4. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
    5. Luca Anderlini & Leonardo Felli, 1994. "Incomplete Written Contracts: Undescribable States of Nature," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 1085-1124.
    6. Dye, Ronald A, 1985. "Costly Contract Contingencies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(1), pages 233-250, February.
    7. Piccione, Michele, 1992. "Finite automata equilibria with discounting," Journal of Economic Theory, Elsevier, vol. 56(1), pages 180-193, February.
    8. Piccione Michele & Rubinstein Ariel, 1993. "Finite Automata Play a Repeated Extensive Game," Journal of Economic Theory, Elsevier, vol. 61(1), pages 160-168, October.
    9. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    10. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1994. "Renegotiation Design with Unverifiable Information," Econometrica, Econometric Society, vol. 62(2), pages 257-282, March.
    11. Tai-Yeong Chung, 1991. "Incomplete Contracts, Specific Investments, and Risk Sharing," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(5), pages 1031-1042.
    12. Abreu, Dilip & Rubinstein, Ariel, 1988. "The Structure of Nash Equilibrium in Repeated Games with Finite Automata," Econometrica, Econometric Society, vol. 56(6), pages 1259-1281, November.
    13. Nöldeke, Georg & Schmidt, Klaus M., 1995. "Option contracts and renegotiation," Munich Reprints in Economics 19329, University of Munich, Department of Economics.
    14. Rubinstein, Ariel, 1986. "Finite automata play the repeated prisoner's dilemma," Journal of Economic Theory, Elsevier, vol. 39(1), pages 83-96, June.
    15. Georg Noldeke & Klaus M. Schmidt, 1995. "Option Contracts and Renegotiation: A Solution to the Hold-Up Problem," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 163-179, Summer.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Luca Anderlini & Leonardo Felli, "undated". "Costly Coasian Contracts," Penn CARESS Working Papers c5b2efc4326ca8bb8162440d6, Penn Economics Department.
    2. Surajeet Chakravarty & W. Bentley MacLeod, 2006. "Construction Contracts (or “How to Get the Right Building at the Right Price?”)," CESifo Working Paper Series 1714, CESifo.
    3. Mehrdad Vahabi, 1999. "From Walrasian General Equilibrium to Incomplete Contracts: Making Sense of Institutions," Post-Print halshs-03704424, HAL.
    4. Schmitz, Patrick W, 2001. "The Hold-up Problem and Incomplete Contracts: A Survey of Recent Topics in Contract Theory," Bulletin of Economic Research, Wiley Blackwell, vol. 53(1), pages 1-17, January.
    5. Donald B. Hausch & Yeon-Koo Che, 1999. "Cooperative Investments and the Value of Contracting," American Economic Review, American Economic Association, vol. 89(1), pages 125-147, March.
    6. Makoto Hanazono, 2004. "Holdup with Subsidized Investment," Econometric Society 2004 Far Eastern Meetings 640, Econometric Society.
    7. Ilya Segal & Michael D.Whinston, 2012. "Property Rights [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    8. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 2002. "On partial contracting," European Economic Review, Elsevier, vol. 46(4-5), pages 745-753, May.
    9. Bester, Helmut, 2013. "Investments and the holdup problem in a matching market," Journal of Mathematical Economics, Elsevier, vol. 49(4), pages 302-311.
    10. Matthew J. Baker & Joyce P. Jacobsen, 2007. "A Human Capital-Based Theory of Postmarital Residence Rules," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 23(1), pages 208-241, April.
    11. Bester, Helmut & Krähmer, Daniel, 2012. "Exit options in incomplete contracts with asymmetric information," Journal of Economic Theory, Elsevier, vol. 147(5), pages 1947-1968.
    12. Ewerhart, Christian & Schmitz, Patrick W., 2000. ""Yes men", integrity, and the optimal design of incentive contracts," Journal of Economic Behavior & Organization, Elsevier, vol. 43(1), pages 115-125, September.
    13. Gersbach, Hans & Haller, Hans, 2020. "On efficient firm formation," Mathematical Social Sciences, Elsevier, vol. 107(C), pages 1-12.
    14. Luca Anderlini & Leonardo Felli, 2006. "Transaction Costs and the Robustness of the Coase Theorem," Economic Journal, Royal Economic Society, vol. 116(508), pages 223-245, January.
    15. Alessandro De Chiara, 2018. "Courts' Decisions, Cooperative Investments, and Incomplete Contracts," CEU Working Papers 2018_5, Department of Economics, Central European University.
    16. Lewis A. Kornhauser & W. Bentley MacLeod, 2012. "Contracts between Legal Persons [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    17. Rey, Patrick & Tirole, Jean, 2001. "Alignement of Interests and the Governance of Joint Ventures," IDEI Working Papers 441, Institut d'Économie Industrielle (IDEI), Toulouse.
    18. Zhu, Tian, 2000. "Holdups, simple contracts and information acquisition," Journal of Economic Behavior & Organization, Elsevier, vol. 42(4), pages 549-560, August.
    19. Eduardo Saavedra, "undated". "Renegotiating Incomplete Contracts: Over and Under Investment of Concessioned Public Infrastructure," ILADES-UAH Working Papers inv106, Universidad Alberto Hurtado/School of Economics and Business.
    20. Wipprich, Mark, 2007. "Preisbindung als Kooperationsinstrument in Wertschöpfungsnetzwerken," Arbeitspapiere 60, University of Münster, Institute for Cooperatives.

    More about this item

    Keywords

    Incomplete contracts; Complexity measures; Computability;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:theord:v:46:y:1999:i:1:p:23-50. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.