TY - JOUR
T1 - A model of complex contracts†
AU - Jakobsen, Alexander M.
N1 - Publisher Copyright:
© 2020 American Economic Association. All rights reserved.
PY - 2020/5
Y1 - 2020/5
N2 - I study a mechanism design problem involving a principal and a single, boundedly rational agent. The agent transitions among belief states by combining current beliefs with up to K pieces of information at a time. By expressing a mechanism as a complex contract—a collection of clauses, each providing limited information about the mechanism—the principal manipulates the agent into believing truthful reporting is optimal. I show that such bounded rationality expands the set of implementable functions and that optimal contracts are robust not only to variation in K, but to several plausible variations on the agent’s cognitive procedure.
AB - I study a mechanism design problem involving a principal and a single, boundedly rational agent. The agent transitions among belief states by combining current beliefs with up to K pieces of information at a time. By expressing a mechanism as a complex contract—a collection of clauses, each providing limited information about the mechanism—the principal manipulates the agent into believing truthful reporting is optimal. I show that such bounded rationality expands the set of implementable functions and that optimal contracts are robust not only to variation in K, but to several plausible variations on the agent’s cognitive procedure.
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U2 - 10.1257/aer.20190283
DO - 10.1257/aer.20190283
M3 - Article
AN - SCOPUS:85085335377
SN - 0002-8282
VL - 110
SP - 1243
EP - 1273
JO - American Economic Review
JF - American Economic Review
IS - 5
ER -