SFB 303 Discussion Paper No. A - 188

Author: Jost, Peter-Jürgen
Title: Contracts with Control Options
Abstract: We extend the principal-agent framework to situations in which the principal has the option to control the agent's behavior. Controlling, however, is costly for the principal. Hence, the problem arises whether information is worth acquiring or not. Moreover, the role of commitment by the principal to these observations is crucial. This paper studies situations in which the principal has to decide on his control activities ex-post after the outcome is revealed. We analyze this relationship as a noncooperative game and use cost-benefit analysis and backwards induction to examine the sequential equilibria.
Creation-Date: July 1988
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