{"title":"Incomplete contracts with disparity, uncertainty, information and incentives","authors":"Susheng Wang","doi":"10.1007/s11238-024-09976-w","DOIUrl":null,"url":null,"abstract":"<p>Cooperation among firms is governed by contracts. An interesting phenomenon is that some contracts are comprehensive while some are limited. This study tries to explain different levels of the incompleteness of contracts that firms choose to govern their cooperation with. We find that a limited contract is more efficient than a comprehensive contract if partners are highly disparate or product quality is largely uncertain, and vice versa. In contrast, if there are private information and incentives to invest in quality, a comprehensive contract is likely to be more efficient. These findings offer an understanding as to why incomplete contracts are so popular in practice.</p>","PeriodicalId":47535,"journal":{"name":"Theory and Decision","volume":"80 1","pages":""},"PeriodicalIF":0.9000,"publicationDate":"2024-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Theory and Decision","FirstCategoryId":"96","ListUrlMain":"https://doi.org/10.1007/s11238-024-09976-w","RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q3","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 0
Abstract
Cooperation among firms is governed by contracts. An interesting phenomenon is that some contracts are comprehensive while some are limited. This study tries to explain different levels of the incompleteness of contracts that firms choose to govern their cooperation with. We find that a limited contract is more efficient than a comprehensive contract if partners are highly disparate or product quality is largely uncertain, and vice versa. In contrast, if there are private information and incentives to invest in quality, a comprehensive contract is likely to be more efficient. These findings offer an understanding as to why incomplete contracts are so popular in practice.
期刊介绍：
The field of decision has been investigated from many sides. However, research programs relevant to decision making in psychology, management science, economics, the theory of games, statistics, operations research, artificial intelligence, cognitive science and analytical philosophy have remained separate. Theory and Decision is devoted to all aspects of decision making belonging to such programs, but addresses also possible cross-fertilizations between these disciplines which would represent effective advances in knowledge. The purpose of the journal is to let the engineering of choice gradually emerge both for individual and for collective decision making. Formalized treatments will be favoured, to the extent that they provide new insights into the issues raised and an appropriate modeling of the situation considered. Due to its growing importance, expermentation in decision making as well as its links to the cognitive sciences will be granted special attention by Theory and Decision.
Of particular interest are: Preference and belief modeling,
Experimental decision making under risk or under uncertainty,
Decision analysis, multicriteria decision modeling,
Game theory, negotiation theory, collective decision making, social choice,
Rationality, cognitive processes and interactive decision making,
Methodology of the decision sciences. Applications to various problems in management and organization science, economics and finance, computer-supported decision schemes, will be welcome as long as they bear on sufficiently general cases. Analysis of actual decision making processes are also relevant topics for the journal, whether pertaining to individual, collective or negotiatory approaches; to private decisions or public policies; to operations or to strategic choices.
Officially cited as: Theory Decis
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