IDEAS home Printed from https://ideas.repec.org/a/wly/emetrp/v92y2024i6p1967-1992.html
   My bibliography  Save this article

Ambiguous Contracts

Author

Listed:
  • Paul Dütting
  • Michal Feldman
  • Daniel Peretz
  • Larry Samuelson

Abstract

We explore the deliberate infusion of ambiguity into the design of contracts. We show that when the agent is ambiguity‐averse and hence chooses an action that maximizes their minimum utility, the principal can strictly gain from using an ambiguous contract, and this gain can be arbitrarily high. We characterize the structure of optimal ambiguous contracts, showing that ambiguity drives optimal contracts toward simplicity. We also provide a characterization of ambiguity‐proof classes of contracts, where the principal cannot gain by infusing ambiguity. Finally, we show that when the agent can engage in mixed actions, the advantages of ambiguous contracts disappear.

Suggested Citation

  • Paul Dütting & Michal Feldman & Daniel Peretz & Larry Samuelson, 2024. "Ambiguous Contracts," Econometrica, Econometric Society, vol. 92(6), pages 1967-1992, November.
    • Handle: RePEc:wly:emetrp:v:92:y:2024:i:6:p:1967-1992
    DOI: 10.3982/ECTA22687
    as

    Download full text from publisher

    File URL: https://doi.org/10.3982/ECTA22687
    Download Restriction: no
    File URL: https://libkey.io/10.3982/ECTA22687?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:emetrp:v:92:y:2024:i:6:p:1967-1992. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/essssea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.