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| Author: | Krasa, S. Villamil, A. P. |
| Title: | Optimal contracts when enforcement is a decision variable |
| Journal: | Econometrica
2000 : JAN, VOL. 68:1, p. 119-134 |
| Index terms: | Econometrics Investors Entrepreneurship Contracts Models |
| Freeterms: | Expected utility Debt management Operations research |
| Language: | eng |
| Abstract: | This paper analyzes choice-theoretic costly enforcement in an intertemporal contracting model with a differentially informed investor and entrepreneur. An intertemporal contract is modelled as a mechanism in which there is limited commitment to payment and enforcement decisions. The goal of the analysis is to characterize the effective choice-theoretic costly enforcement on the structure of optimal contracts. It is shown that simple debt is the optimal contract when commitment is limited and costly enforcement is a decision variable. In contrast, stochastic contracts are optimal when agents can commit to the ex-ante optimal decisions. |
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