Arbeitspapier
Contracting with Endogenously Incomplete Commitment: Escape Clauses
We study mechanism design under endogenously incomplete commitment as it arises in contracting with escape clauses. An escape clause permits the agent to end a contractual relationship under specified circumstances, after which the principal can offer an ex-post contract. Escape clauses are valuable when the maximal number of initial contracts is smaller than the number of agent types. We identify a sufficient condition for incentive optimality of ex-post contracting. Escape clauses are always incentive optimal under severely constrained contracting. On the margin, the optimal escape clause balances the benefit of a better-adapted contract against an increase in dynamic inefficiency.
- Language
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Englisch
- Bibliographic citation
-
Series: IFN Working Paper ; No. 1390
- Classification
-
Wirtschaft
Asymmetric and Private Information; Mechanism Design
Expectations; Speculations
Economics of Contract: Theory
- Subject
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Constrained contracting
Escape clauses
Endogenously incomplete commitment
Ratchet effect
Revelation principle
- Event
-
Geistige Schöpfung
- (who)
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Tangerås, Thomas P.
Gick, Wolfgang
- Event
-
Veröffentlichung
- (who)
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Research Institute of Industrial Economics (IFN)
- (where)
-
Stockholm
- (when)
-
2021
- Handle
- Last update
-
10.03.2025, 11:45 AM CET
Data provider
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ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Tangerås, Thomas P.
- Gick, Wolfgang
- Research Institute of Industrial Economics (IFN)
Time of origin
- 2021
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