University / Organisation : Stevens Institute of Technology
Paper or project ? project
Title : Incentives for Contract Designers and Contractual Design
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Abstract : This paper examines the optimal provision of incentives for contract designers and the implications for contractual design. A buyer hires an agent to draft a contract for the seller that is incomplete because the ex-ante specified design might not be appropriate ex-post. The degree of contract incompleteness is endogenously determined by the effort exerted by the agent, who can manipulate the buyer's beliefs because his effort is not observable (moral hazard), and he is better informed at the outset (adverse selection). We discuss how the asymmetric information generated during the contract drafting stage explains some empirical observations and contracting phenomena.