Incomplete Contract and Verifiability

Akira Okada ()
Additional contact information
Akira Okada: Kyoto University

No 982, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: While the theory of incomplete contracts has contributed greatly to our understanding many topics such as the nature and financial struc- ture of the firm, its rigorous foundation has been debated. Maskin and Tirole (1999) show that the usual "observable but not verifiable" as- sumption is not sufficient for the incomplete contract to be optimal, provided that parties can commit themselves not to renegotiate. We show that the assumption is not necessary, either. In sequential bar- gaining where parties can write a contract contingent on (ex post) veri- fiable variables, an equilibrium contract turns out to be a null contract (the ex post Nash bargaining solution). A key to our result is endoge- nous revealing of private information during contract negotiations. The possibility of renegotiations is irrelevant.

Keywords: incomplete contract; ex post Nash bargaining solution; information revealing; sequential bargaining; verifiability (search for similar items in EconPapers)
JEL-codes: C72 C78 D82 (search for similar items in EconPapers)
Pages: 21pages
Date: 2018-01
New Economics Papers: this item is included in nep-cta, nep-gth and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.kier.kyoto-u.ac.jp/DP/DP982.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kyo:wpaper:982

Access Statistics for this paper

More papers in KIER Working Papers from Kyoto University, Institute of Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by Makoto Watanabe ().