NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Satisficing Contracts

Patrick Bolton, Antoine Faure-Grimaud

NBER Working Paper No. 14654
Issued in January 2009
NBER Program(s):   CF   IO   LE

We propose a model of equilibrium contracting between two agents who are "boundedly rational" in the sense that they face time-costs of deliberating current and future transactions. We show that equilibrium contracts may be incomplete and assign control rights: they may leave some enforceable future transactions unspecified and instead specify which agent has the right to decide these transactions. Control rights allow the controlling agent to defer time-consuming deliberations on those transactions to a later date, making her less inclined to prolong negotiations over an initial incomplete contract. Still, agents tend to resolve conflicts up-front by writing more complete initial contracts. A more complete contract can take the form of either a finer adaptation to future contingencies, or greater coarseness. Either way, conflicts among contracting agents tend to result in excessively complete contracts in the sense that the maximization of joint payoffs would result in less up-front deliberation.

download in pdf format
   (312 K)

email paper

This paper is available as PDF (312 K) or via email.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w14654

Published: Patrick Bolton & Antoine Faure-Grimaud, 2010. "Satisficing Contracts," Review of Economic Studies, Wiley Blackwell, vol. 77(3), pages 937-971, 07.

Users who downloaded this paper also downloaded these:
Bolton and Faure-Grimaud w11867 Thinking Ahead: The Decision Problem
Bolton and Harris w16094 The Dynamics of Optimal Risk Sharing
Ayotte and Bolton w13316 Optimal Property Rights in Financial Contracting
Bolton, Freixas, and Shapiro w14712 The Credit Ratings Game
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us