Differential Delivery Dates, Retrievability and the Incentives Compatibility of Contracts

Raul Fabella

No 201504, UP School of Economics Discussion Papers from University of the Philippines School of Economics

Abstract: Differential delivery dates (D3) of contract obligations characterize most contracts in real life. D3 puts the contractor who delivers last, in the words of David Hume (1769), in “a position of advantage” because reneging on his/her obligation can be profitable. Ex-ante remedies such as Coase’s “ownership”, Williamson’s “hostage”, Klein et al’s “vertical ownership”, Grossman and Hart’s “assignment of residual rights”, etc have been proposed. The principal’s decision to appropriate the quasi-rent generated by the agent delivering effort first under possibly weak public ordering and non-zero retrievability of delivered effort is explicitly modeled. We give the sufficient conditions for the preservation of the incentives compatibility of the simple P-A effort-in-advance contract in the D3 environment.

Keywords: incentives compatibility; quasi-rent appropriation; retrievability; incentives contract (search for similar items in EconPapers)
JEL-codes: D52 D86 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2015-04
New Economics Papers: this item is included in nep-hrm and nep-sea
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Published as UPSE Discussion Paper No. 2015-04, April 2015

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Persistent link: https://EconPapers.repec.org/RePEc:phs:dpaper:201504

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