Describability and Agency Problems

Luca Anderlini and Leonardo Felli ()

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Abstract: This paper suggests a reason, other than asymmetric information, why agency contracts are not explicitly contingent on the agent's performance or actions. Two ingredients are essential to this reason. The first is the written form that contracts are required to take to be enforceable. The second is a form of discontinuity in the parties' preferences and in the technology that transforms actions into a (probabilistic) outcome. We show that under these conditions the chosen contract may not be explicitly contigent on the agent's action although, in principle, such actions are contractible and observable to all parties to the contract, court included.

Keywords: Acency Problems; Written Contracts; Incomplete Contracts; Hard-to-describe Actions and Outcomes (search for similar items in EconPapers)
JEL-codes: C69 D89 L14 (search for similar items in EconPapers)
Date: 1995-11-15, Revised 1996-09-20
Note: Type of Document - LaTeX; prepared on IBM PC ; to print on PostScript 600DPI; pages: 32; figures: included
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Journal Article: Describability and agency problems (1998)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpga:9511001

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