2005 | OriginalPaper | Buchkapitel
Optimal multilateral contracts
verfasst von : Stefan Krasa, Anne P. Villamil
Erschienen in: Differential Information Economies
Verlag: Springer Berlin Heidelberg
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The purpose of this paper is to derive the structure of optimal multilateral contracts in a costly state verification model with multiple agents who may be risk averse and need not be identical. We consider two different verification technology specifications. When the verification technology is deterministic, we show that the optimal contract is a multilateral debt contract in the sense that the monitoring set is a lower interval. When the verification technology is stochastic, we show that transfers and monitoring probabilities are decreasing functions of wealth. The key economic problem in this environment is that optimal contracts are
interdependent
. We are able to resolve this interdependency problem by using abstract measure theoretic tools.