Journal article
Contracting on Ambiguous Prospects
The Economic journal (London), Vol.127(606), pp.2241-2262
11/2017
DOI: 10.1111/ecoj.12381
Abstract
We study contracting problems where one party perceives ambiguity about the relevant contingencies. We show that the party who perceives ambiguity has to observe only the revenue/loss generated by the prospect object of negotiation, but not the underlying state. We, then, introduce a novel condition (vigilance), which extends the popular monotone likelihood ratio property to settings featuring ambiguity. Under vigilance, optimal contracts are monotonic and, thus, produce the right incentives in the presence of both concealed information and hidden actions. Our result holds irrespectively of the party's attitude towards ambiguity. Sharper results obtain in the case of global ambiguity‐loving behaviour.
Details
- Title: Subtitle
- Contracting on Ambiguous Prospects
- Creators
- Massimiliano Amarante - Université de MontréalMario Ghossoub - Imperial College LondonEdmund Phelps - Columbia University
- Resource Type
- Journal article
- Publication Details
- The Economic journal (London), Vol.127(606), pp.2241-2262
- DOI
- 10.1111/ecoj.12381
- ISSN
- 0013-0133
- eISSN
- 1468-0297
- Number of pages
- 22
- Grant note
- Social Sciences and Humanities Research Council of Canada
- Language
- English
- Date published
- 11/2017
- Academic Unit
- Statistics and Actuarial Science
- Record Identifier
- 9985179682502771
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