Bait Contracts

This paper explores contracting in the presence of ambiguity. It revisits Holmstrom's (1979) suffcient statistic result of when to condition a contract on an outside signal. It is shown that if the signal is ambiguous, in the sense that its probability distribution is unknown, then Holmstrom's result can be overturned. Specically, uninformative ambiguous signals can be valuable.


Issue Date:
2009-08
Publication Type:
Working or Discussion Paper
DOI and Other Identifiers:
Record Identifier:
https://ageconsearch.umn.edu/record/273698
Language:
English
Total Pages:
24
JEL Codes:
D82; D80; D86
Series Statement:
Working Paper No. 1212




 Record created 2018-06-19, last modified 2020-10-28

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