Exit options in incomplete contracts with asymmetric information
This paper analyzes bilateral contracting in an environment with contractual incompleteness and asymmetric information. One party (the seller) makes an unverifiable quality choice and the other party (the buyer) has private information about its valuation. A simple deterministic exit option contract...
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| Veröffentlicht in: | Journal of economic theory 2012-09, Vol.147 (5), p.1947-1968 |
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| Hauptverfasser: | , |
| Format: | Artikel |
| Sprache: | eng |
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| container_end_page | 1968 |
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| container_issue | 5 |
| container_start_page | 1947 |
| container_title | Journal of economic theory |
| container_volume | 147 |
| creator | Bester, Helmut Krähmer, Daniel |
| description | This paper analyzes bilateral contracting in an environment with contractual incompleteness and asymmetric information. One party (the seller) makes an unverifiable quality choice and the other party (the buyer) has private information about its valuation. A simple deterministic exit option contract, which allows the buyer to refuse trade, achieves the first-best in the benchmark cases where either quality is verifiable or the buyerʼs valuation is public information. But, when unverifiable and asymmetric information are combined, deterministic contracts are necessarily inefficient. The first-best can be achieved, however, through simple message games with stochastic terms of trade as off-equilibrium outcomes. |
| doi_str_mv | 10.1016/j.jet.2012.05.008 |
| format | Article |
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| identifier | ISSN: 0022-0531 |
| ispartof | Journal of economic theory, 2012-09, Vol.147 (5), p.1947-1968 |
| issn | 0022-0531 1095-7235 |
| language | eng |
| recordid | cdi_proquest_miscellaneous_1136517793 |
| source | Elsevier ScienceDirect Journals |
| subjects | Asymmetric information Asymmetry Benchmarking Bilateral relations Contracts Decision making Economic theory Economics Equilibrium Games Incomplete contracts Information Messages Option contracts Refuse Stochastic models Stochasticity Studies Terminations Valuation |
| title | Exit options in incomplete contracts with asymmetric information |
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