We develop a model of strategic contractual incompleteness that identifies conditions under which principals might omit even costlessly verifiable terms. We then use experiments to test comparative statics predictions of the model. While it is well known that verifiability imperfections can limit complete contracting, researchers know less about how the degree of imperfection affects endogenous...

Firms sometimes try to “poach” the current customers of their competitors by offering them special inducements to switch. We analyze duopoly poaching under both short-term and long-term contracts in two polar cases: either each consumer’s brand preferences are constant from one period to the next, or preferences are independent over time. With fixed preferences, poaching induces socially ineffi...

We analyze the structure and pricing of option contracts for an industrial good in the presence of spot trading. We combine the analysis of spot trading and buyers’ disparate private valuations for different suppliers’ products, and jointly endogenize the determination of three major dimensions in contract design: (i) sales contracts versus options contracts; (ii) flat-price versus volume-depen...

Limited observability is the assumption that economic agents can only observe a finite amount of information. Given this constraint, contracts among agents are necessarily finite and incomplete in comparison to the ideal complete contract that we model as infinite in detail. We consider the extent to which finite contracts can approximate the idealized complete contracts. The objectives of the ...

We ask under what conditions transmission contracts increase or mitigate market power. We show that the allocation process of transmission rights is crucial. In an efficiently arbitraged uniform price auction generators will only obtain contracts that mitigate their market power. However, if generators inherit transmission contracts or buy them in a ‘pay-as-bid’ auction, then these contracts ca...

This paper evaluates regulation by contract in public-private partnerships (PPPs) in infrastructure services. Although the benefits of competition for the market and of regulatory contracts are widely acknowledged, the literature indentifies several failures in their design. These ‘flaws’ are present in both developed and developing countries and arise in all types of contracts. This study anal...

A federated database system is a collection of organizations, called a federation, and a collection of databases belonging to the organizations. Members of the federation can enter into contracts that specify how data is shared between the databases of the system. An important issue is how the contracts interact with one another. This paper presents a simple framework for writing contracts in f...

This paper studies optimal menus of debt contracts such as secured debentures or bonds, in the presence of diversity of opinions between borrowers and lenders. We first characterize incentive compatible contracts, then prove the existence of optimal debt contracts. Finally, we are able to explicitly characterize such optimal menus within a specific case: we notably show that borrowers optimally...

A manufacturer writes supply contracts with N buyers. Then, the buyers invest in product development and marketing, and the manufacturer builds capacity. Finally, demand is realized, and the ...rms renegotiate the supply contracts to achieve an e¢cient allocation of capacity among the buyers. The court remedy for breach of contract (speci...c performance versus expectation damages) a¤ects how t...