Suchergebnisse

In a model with internal and external risks together with incentive problems, this paper investigates the role of a risky environment on contractual incompleteness. We consider a typical employment contract with an extra control option. This option is contractable ex ante, exercisable ex post, and good for incentives. But, the employer may choose not to have it in a contract. We identify some interesting circumstances under which the option is not in the optimal contract. Our main findings are that (1) external risks determine contractual incompleteness, and (2) a complete contract can better handle incentives, while an incomplete contract can better handle external risks. Hence, our analysis of incomplete contracts is somewhat consistent with Williamson's (1985) idea of low-powered incentives inside the firm and high-powered incentives outside the firm.

We show that concerns for fairness may have dramatic consequences for the optimal provision of incentives in a moral hazard context. Incentive contracts that are optimal when there are only selfish actors become inferior when some agents are concerned about fairness. Conversely, contracts that are doomed to fail when there are only selfish actors provide powerful incentives and become superior when there are also fair-minded players. These predictions are strongly supported by the results of a series of experiments. Furthermore, our results suggest that the existence of fair actors may be an important reason why many contracts are left deliberately incomplete.

The processes associated with the inevitability of globalization are patently not market-driven; there is a social dimension to the so-called economic compulsion. Therefore, neither the globalization discourse nor the general equilibrium model acknowledges the institutional differences and social determinants of markets, because they are presented as homogenous and convergent. The inadequacy of the first generation of economic reforms associated with the Washington Consensus and also of the institutional emphasis of the second generation of reforms of the post-Washington Consensus highlighted a missing social and political dimension. Though their emphases vary and complement each other, no set of reforms acknowledges the vital political character of the situated agents in context, as both generations of reforms are oriented towards the harmonization of policies.