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A Characterization of Verifiability and Observability in Contracts

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  • Nicola Dimitri

    (Department of Political Economy and Statistics, University of Siena, Piazza San Francesco 7, 53100 Siena, Italy)

Abstract

Reference to the notions of verifiability and observability is widespread in contract theory. This paper is a contribution towards a formalization, and related characterizations, of these two notions. In particular we first define them, through knowledge operators, and then provide characterization results in terms of the relevant state spaces. Since, when referring to a contract, observability typically pertains to parties while verifiability to the court, we define them differently. A main finding of the paper is that for proper contract verifiability to obtain the court must imagine true states and have information processing abilities as good as the parties.

Suggested Citation

  • Nicola Dimitri, 2018. "A Characterization of Verifiability and Observability in Contracts," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 20(02), pages 1-15, June.
    • Handle: RePEc:wsi:igtrxx:v:20:y:2018:i:02:n:s0219198917500323
    DOI: 10.1142/S0219198917500323
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    References listed on IDEAS

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