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Contracting under uncertainty: A principal-agent model with ambiguity averse parties

Grant, Simon; Jude Kline, J; Quiggin, John

Description

We introduce linguistic ambiguity into a principal–agent contracting framework. Contracts are drafted in a common language. Nevertheless, the principal and the agent may ultimately disagree about the terms of the contract that apply ex post. We presume that both parties are ambiguity averse and for tractability reasons that their preferences take a recursive constant absolute risk averse (RCARA) form. We consider various dispute resolution regimes and analyze how the optimal dispute resolution...[Show more]

dc.contributor.authorGrant, Simon
dc.contributor.authorJude Kline, J
dc.contributor.authorQuiggin, John
dc.date.accessioned2021-10-26T00:27:03Z
dc.identifier.issn0899-8256
dc.identifier.urihttp://hdl.handle.net/1885/251167
dc.description.abstractWe introduce linguistic ambiguity into a principal–agent contracting framework. Contracts are drafted in a common language. Nevertheless, the principal and the agent may ultimately disagree about the terms of the contract that apply ex post. We presume that both parties are ambiguity averse and for tractability reasons that their preferences take a recursive constant absolute risk averse (RCARA) form. We consider various dispute resolution regimes and analyze how the optimal dispute resolution regime depends on the ambiguity attitudes of the parties. We also provide an axiomatization of the class of RCARA preferences.
dc.format.mimetypeapplication/pdf
dc.language.isoen_AU
dc.publisherAcademic Press
dc.rights© 2018 Elsevier Inc
dc.sourceGames and Economic Behavior
dc.subjectLinguistic ambiguity
dc.subjectPrincipal agent problem
dc.subjectState-contingent versus output contingent
dc.subjectcontracts
dc.titleContracting under uncertainty: A principal-agent model with ambiguity averse parties
dc.typeJournal article
local.description.notesImported from ARIES
local.identifier.citationvolume109
dc.date.issued2018
local.identifier.absfor140199 - Economic Theory not elsewhere classified
local.identifier.absfor140299 - Applied Economics not elsewhere classified
local.identifier.ariespublicationa383154xPUB9590
local.publisher.urlhttps://www.elsevier.com/en-au
local.type.statusPublished Version
local.contributor.affiliationGrant, Simon, College of Business and Economics, ANU
local.contributor.affiliationJude Kline, J, University of Queensland
local.contributor.affiliationQuiggin, John, University of Queensland
local.description.embargo2099-12-31
local.bibliographicCitation.startpage582
local.bibliographicCitation.lastpage597
local.identifier.doi10.1016/j.geb.2018.02.008
dc.date.updated2020-11-23T11:37:34Z
local.identifier.scopusID2-s2.0-85044102514
CollectionsANU Research Publications

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