Working Papers Home


2014 Working Papers
2013 Working Papers
2012 Working Papers
2011 Working Papers
2010 Working Papers
2009 Working Papers
2008 Working Papers
2007 Working Papers
2006 Working Papers
2005 Working Papers
2004 Working Papers
2003 Working Papers
2002 Working Papers
2001 Working Papers
2000 Working Papers


Search All Papers


JEL Classification


Past Working Papers (Prior to 2000)


Office of Research
Home Page



Information on
Submitting a Paper



 
 
"Limited Observability as a Constrint in Contract Design"

Stefan Krasa and Steven R. Williams

 

First Author :

Stefan Krasa
Economics
University of Illinois at Urbana-Champaign
1206 S. Sixth Street, M/C 706
Champaign, IL 61820
USA

skrasa@uiuc.edu

Create Profile


Second Author :

Steven R. Williams
Economics
University of Illinois at Urbana-Champaign
1206 S. Sixth Street, M/C 706
Champaign, IL 61820
USA

swillia3@uiuc.edu

http://www.business.uiuc.edu/faculty/williams.html

 
 
Abstract :
 
Limited observability is the assumption that economic agents can only observe a finite amount of information. Given this constraint, contracts among agents are necessarily finite and incomplete in comparison to the ideal complete contract that we model as infinite in detail. We consider the extent to which finite contracts can approximate the idealized complete contracts. The objectives of the paper are: (i) to identify properties of agentsí preferences that determine whether or not finiteness of contracts causes significant inefficiency: (ii) to evaluate the performance of finite contracts against the ideal optimal contracts in principal-agent and bilateral bargaining models.
 
 
JEL Classification : D82 , C78
 
 
Keywords :
 
bounded rationality, contractual incompleteness, limited observability
 
 
Manuscript Received : 2001
Manuscript Published : 2001
 
 
This abstract has been viewed 2566 times.
Click here to view the full text of this paper.