A Model of Complex Contracts
- (pp. 1243-73)
AbstractI study a mechanism design problem involving a principal and a single, boundedly rational agent. The agent transitions among belief states by combining current beliefs with up to K pieces of information at a time. By expressing a mechanism as a complex contract—a collection of clauses, each providing limited information about the mechanism—the principal manipulates the agent into believing truthful reporting is optimal. I show that such bounded rationality expands the set of implementable functions and that optimal contracts are robust not only to variation in K , but to several plausible variations on the agent's cognitive procedure.
CitationJakobsen, Alexander M. 2020. "A Model of Complex Contracts." American Economic Review, 110 (5): 1243-73. DOI: 10.1257/aer.20190283
- D82 Asymmetric and Private Information; Mechanism Design
- D86 Economics of Contract: Theory