Flexible contracts
Article dans une revue: This paper studies the costs and benefits of delegating decisions to superiorly informed agents, that is of adopting flexible contracts, relative to the use of rigid, non discretionary contracts. The main focus of the paper lies in the analysis of the costs of delegation, primarily agency costs, versus their benefits, primarily the flexibility of the action choice in two different environments, one with risk and one with ambiguity. We first determine and characterize the properties of the optimal flexible contract. We then show that the higher the agent's degree of risk aversion, the higher is the agency costs of delegation and the less profitable a flexible contract relative to a rigid one. When the parties have imprecise probabilistic beliefs, the agent's degree of imprecision aversion introduces another agency cost, which again reduces the relative profitability of flexible contracts. JEL Classification: D86, D82, D81.
Auteur(s)
Piero Gottardi, Jean-Marc Tallon, Paolo Ghirardato
Revue
- Games and Economic Behavior
Collection
- John Nash Memorial
Date de publication
- 2017
Mots-clés
- Multiple Priors
- Delegation
- Agency Costs
- Imprecision Aversion
- Flexibility
Pages
- 145-167
URL de la notice HAL
Version
- 1
Volume
- 103