On Randomization in Coalition Contracts

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

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: incomplete contracts; asymmetric information; coalitions; renegotiation
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D86 - Economics of Contract: Theory; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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