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General Nash Bargaining Solution
In: HKUST Business School Research Paper No. 2022-061
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Efficient Venture Capital Market
In: HKUST Business School Research Paper No. 2022-60
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Strategic Investment in Technology via Corporate Venture Capital
In: HKUST Business School Research Paper No. 2021-30
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The Selection Principle in Games
In: HKUST Business School Research Paper No. 2020-018
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Working paper
A Unified Theory of Money
In: HKUST Business School Research Paper No. 2020-014
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Working paper
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Working paper
Incomplete Contracts with Disparity, Uncertainty, Information and Incentives
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Working paper
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Working paper
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Working paper
Bundling of Authority and Accountability in Organizations
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Working paper
Contractual Incompleteness for External Risks
In: The B.E. journal of theoretical economics, Volume 10, Issue 1
ISSN: 1935-1704
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.