Munich Personal RePEc Archive

On Randomization in Coalition Contracts

Schmitz, Patrick W. (1998): On Randomization in Coalition Contracts.

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Abstract

This article analyzes a much debated clause in the 1996 coalition contract between SPD and F.D.P. in Rheinland-Pfalz. Two parties write a contract, based on which decisions under incomplete information have to be made at a later point in time. It is shown that a complex complete contract can achieve the first best outcome. However, a simple incomplete contract can implement the first best outcome only if use of seemingly inefficient randomization is made.

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