This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. Journals
  3. American Economic Review
  4. May 2020
  5. A Model of Complex Contracts

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

A Model of Complex Contracts

  • Alexander M. Jakobsen
American Economic Review
vol. 110, no. 5, May 2020
(pp. 1243–73)
Download Full Text PDF

Abstract

I study a mechanism design problem involving a principal and a single, boundedly rational agent. The agent transitions among belief states by combining current beliefs with up to K pieces of information at a time. By expressing a mechanism as a complex contract—a collection of clauses, each providing limited information about the mechanism—the principal manipulates the agent into believing truthful reporting is optimal. I show that such bounded rationality expands the set of implementable functions and that optimal contracts are robust not only to variation in K , but to several plausible variations on the agent's cognitive procedure.

Citation

Jakobsen, Alexander M. 2020. "A Model of Complex Contracts." American Economic Review, 110 (5): 1243–73. DOI: 10.1257/aer.20190283

Additional Materials

JEL Classification

  • D82 Asymmetric and Private Information; Mechanism Design
  • D86 Economics of Contract: Theory