A theoretical foundation for games of complete/incomplete contracts

Chenghu Ma and Wing-Keung Wong
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Chenghu Ma: School of Management, Fudan University, P. R. China

International Journal of Financial Engineering (IJFE), 2021, vol. 08, issue 01, 1-19

Abstract: This paper provides a theoretical foundation for complete/incomplete contracts to extend game theory for multi-agent interactions. We explain why rational agents may agree to sign incomplete contracts even though signing a complete contract incurs no cost. Some arguments claim that an incomplete contract creates strategic uncertainty. Under common assumptions of rationality, an incomplete contract can be the final solution if the agents’ attitudes toward uncertainty are not neutral. Assuming that agents can form coalitions by participating in the game and they are uncertainty averse, we develop equilibrium solutions for complete/incomplete contracts in an extensive game of multi-agent interactions.

Keywords: Strategic uncertainty; uncertainty aversion; complete and incomplete contracts; coalition-formation; stability and core-criterion (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1142/S2424786321500109

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