We would like to thank the editor and three referees for many useful suggestions that we ended up incorporating into the paper.
Definable and Contractible Contracts
Article first published online: 10 JAN 2012
© 2012 The Econometric Society
Volume 80, Issue 1, pages 363–411, January 2012
How to Cite
Peters, M. and Szentes, B. (2012), Definable and Contractible Contracts. Econometrica, 80: 363–411. doi: 10.3982/ECTA8375
- Issue published online: 10 JAN 2012
- Article first published online: 10 JAN 2012
- Manuscript received January, 2009; final revision received April, 2011.
- contract theory;
- folk theorem
This paper analyzes Bayesian normal form games in which players write contracts that condition their actions on the contracts of other players. These contracts are required to be representable in a formal language. This is accomplished by constructing contracts which are definable functions of the Godel code of every other player's contract. We provide a complete characterization of the set of allocations supportable as pure-strategy Bayesian equilibria of this contracting game. When information is complete, this characterization provides a folk theorem. In general, the set of supportable allocations is smaller than the set supportable by a centralized mechanism designer.