Optimal Design of Financial Contracts: The Role of Ambiguity

We consider the role of ambiguous beliefs, captured by Maxmin expected utility, in a basic models from costly state verification literature, namely; Threat of Termination .. The paper characterizes the optimal structure of this contract by enriching the standard model to account for Principal`s uncertainty .Ultimately, we capture a new set of tradeoffs as a consequence of such generalization .Further we characterize the conditions under which they might be inconsistent with SEU hypothesis.

کلیدواژه ها:

Optimal Design of Contracts ، Costly state verification ، Threat of termination ، Ambiguity ، Maxmin expected utility