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9 Cards in this Set
- Front
- Back
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3 different types of contracts
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short vs long term (spot contract)
complete vs incomplete (specifications, circumstances) implicit vs explicit |
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2 types of contracting problems
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hold up: ???
asymmetric information |
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consequence spot contracts
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adverse selection: high quality transacotrs will withdraw from market
moral hazard: other firm can act in a manner inimcal to the interests of other party |
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consequence long term contract
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strategic behavior by firm
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strateigc behavior
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Firms will attempt to establish a reputation for quality. Accordingly, firms know that their present behaviour will affect their future market position.
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Dominant strategy
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a strategy preferred by a player regardless of the strategy of other players.
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Nash equilibrium
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a set of strategies, one for each player, such that each player is choosing the best strategies given the strategies of other players.
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principal agent problem
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This problem arises when one party (the principal) wishes to ensure that another party (the agent) acts in accordance with the principal’s goals (or interests), in situation where the agent has information unavailable to the principal (“hidden action” and/or “hidden knowledge”).
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`problem principal agent
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devise a contractual framework that gives agents incentives to behave in the interests of their principals!
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