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Ambiguity aversion and incompleteness of contractual form

Mukerji, S. (1997) Ambiguity aversion and incompleteness of contractual form , Southampton, UK University of Southampton (Discussion Papers in Economics and Econometrics, 9715).

Record type: Monograph (Discussion Paper)

Abstract

Subjective uncertainty is characterized by ambiguity if the decision maker has an imprecise knowledge of the probabilities of payoff relevant events. In such an instance, the decision maker's beliefs are better represented by a set of probability functions than by a unique probability function. An ambiguity averse decision maker adjusts his choice on the side of caution in response to his imprecise knowledge of the odds. The non-additive expected utility model allows a formal characterization of such behaviour. Using this model, this paper shows that ambiguity aversion can explain the existence of incomplete contracts. The setting for the demonstration is the investment hold-up model which has been the focus of much of the recent research on the implications of incomplete contracts.

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More information

Published date: January 1997
Additional Information: Revised version of Discussion Paper 9616

Identifiers

Local EPrints ID: 33189
URI: http://eprints.soton.ac.uk/id/eprint/33189
PURE UUID: e8227007-d5e1-41b1-931f-6b526edc137f

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Date deposited: 25 Jan 2008
Last modified: 17 Jul 2017 15:53

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Contributors

Author: S. Mukerji

University divisions

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