Adaptive contracting: the trial-and-error approach to outsourcing

Morten Bennedsen () and Christian Schultz ()

Economic Theory, 2005, vol. 25, issue 1, 35-50

Abstract: Adaptive contracting occurs when a principal experiments with the delegation of authority through leaving contracts incomplete. We highlight two potential benefits of adaptive contracting: First, the delegation of authority can be advantageous even if the agent acts opportunistically, since expected private benefits will be shared between the parties through price negotiation. Second, the principal extracts information from experimenting with delegation of authority and we identify a positive option value embodied in the principal’s ability to extend or withdraw the delegated authority in future contracting periods. Copyright Springer-Verlag Berlin/Heidelberg 2005

Keywords: Incomplete contracting; Trial and error; Authority; Outsourcing; Procurement. (search for similar items in EconPapers)
Date: 2005
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1007/s00199-004-0475-7 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Adaptive Contracting: The Trial-and-Error Approach to Outsourcing (2003)
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:spr:joecth:v:25:y:2005:i:1:p:35-50

Ordering information: This journal article can be ordered from
http://www.springer. ... eory/journal/199/PS2

DOI: 10.1007/s00199-004-0475-7

Access Statistics for this article

Economic Theory is currently edited by Nichoals Yanneils

More articles in Economic Theory from Springer, Society for the Advancement of Economic Theory (SAET) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().