A model of complex contracts†

Alexander M. Jakobsen*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)1243-1273
Number of pages31
JournalAmerican Economic Review
Volume110
Issue number5
DOIs
StatePublished - May 2020

ASJC Scopus subject areas

  • Economics and Econometrics

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