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Optimal multilateral contracts

  • Stefan Krasa
  • Anne P. Villamil
Chapter
Part of the Studies in Economic Theory book series (ECON.THEORY, volume 19)

Summary

The purpose of this paper is to derive the structure of optimal multilateral contracts in a costly state verification model with multiple agents who may be risk averse and need not be identical. We consider two different verification technology specifications. When the verification technology is deterministic, we show that the optimal contract is a multilateral debt contract in the sense that the monitoring set is a lower interval. When the verification technology is stochastic, we show that transfers and monitoring probabilities are decreasing functions of wealth. The key economic problem in this environment is that optimal contracts are interdependent. We are able to resolve this interdependency problem by using abstract measure theoretic tools.

Keywords

Measure Preserve Incentive Compatibility Optimal Contract Costly State Isomorphism Theorem 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer-Verlag Berlin Heidelberg 2005

Authors and Affiliations

  • Stefan Krasa
    • 1
  • Anne P. Villamil
    • 1
  1. 1.Department of EconomicsUniversity of IllinoisChampaignUSA

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