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Freie Universität Bozen

24 Sep 2020 12:30–13:30

Contracting with endogenously incomplete commitment: Escape clauses

Wolfgang Gick, unibz

Referent Wolfgang Gick, unibz

Datum 24 Sep 2020 12:30 - 13:30

Ort Online Event

Mehr Informationen Sabine Zanin


Abstract: We consider a mechanism design problem between a principal and a single agent. Contracting is costly such that not every type of agent can be offered a type-contingent contract, so involving incomplete commitment that arises endogenously through the option to invoke an escape clause. Escape clauses are commonly used in regulation and procurement; they specify a subset of cost realizations ex ante for which the menu of initial contracts is void. We so explain under what conditions a principal may benefit from designing contracts with an escape clause and derive trade-offs in the design.

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