since this blog is basically become a writing pad for research topics
I guess you got to say
I like this s***!
let us agree to disagree and bow down to our collective bounded rationality
leave the contract incomplete in the face of this eternal asymmetry
for haggling costs are great
to coordinate
our trade and the actions we take
when information is costly and there is specificity and complexity
we must draw our boundaries with the least amount of haste
I amuse myself here; Your amusement is intended but boundedly so
3 comments:
so actually leaving the contract incomplete is kinda efficient because those situations may arise with v small probability and why haggle over what will happen then...?
first contracts are incomplete. i mean real physical contracts.
this can be understood in terms of what the future holds.
if the future is v "complex", it is better to have more incomplete contracts. because rather than attempt at calculating everything ex-ante, better to deal with things as they arise.
williamson maintains that mechanism design falls under a complete contract assumption, although apparently the people who started mechanism design - Hurcwiz - were motivated by incomplete contract thinking.
of course there is a logical inconsistency here
implicitly, the costs of calculating what the future holds are too high, so the contract is left incomplete.
but how would you know that? you would have to know the entire future, and that is ruled out by bounded rationality.
maskin and tirole have a couple of papers where they show this inconsistency. in reply, hart sort of said - well contracts are incomplete so what if we cannot show it rigorously.
the bajari-tadelis model is supposed to be an incomplete contract model, but it isn't because they assume all states of the world are known.
whoever solves this will get a nobel prize.
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