Exit Options in Incomplete Contracts with Asymmetric Information

Arbeitspapier

This paper analyzes bilateral contracting in an environment with contractual incompleteness and asymmetric information. One party (the seller) makes an unverifiable quality choice and the other party (the buyer) has private information about its valuation. A simple exit option contract, which allows the buyer to refuse trade, achieves the first-best in the benchmark cases where either quality is verifiable or the buyer's valuation is public information. But, when unverifiable and asymmetric information are combined, exit options induce inefficient pooling and lead to a particularly simplecontract. Inefficient pooling is unavoidable also under the most general form of contracts, which make trade conditional on the exchange of messages between the parties. Indeed, simple exit option contracts are optimal if random mechanisms are ruled out.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: SFB/TR 15 Discussion Paper ; No. 251

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Asymmetric and Private Information; Mechanism Design ; Economics of Contract: Theory ; Information and Product Quality; Standardization and Compatibility
• Thema: Incomplete Contracts ; Asymmetric Information ; Exit Options

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Bester, Helmut ; Krähmer, Daniel
• Ereignis: Veröffentlichung
• (wer): Sonderforschungsbereich/Transregio 15 - Governance and the Efficiency of Economic Systems (GESY)
• (wo): München
• (wann): 2008

Weitere Informationen

• DOI: doi:10.5282/ubm/epub.13301
• Handle: http://hdl.handle.net/10419/94113
• URN: urn:nbn:de:bvb:19-epub-13301-1
• Letzte Aktualisierung: 10.03.2025, 11:41 MEZ