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Undescribable events

delete2006-10-01
delete23
PRE
AI
N
Nabil I. Al‐Najjar *
L
Luca Anderlini
L
Leonardo Felli
DOI：10.1111/j.1467-937X.2006.00399.xdelete
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Abstract

Abstract

En 中文
We develop a model of undescribable events. Examples of events that are well understood by economic agents but are prohibitively difficult to describe in advance abound in real life. This notion has also pervaded a substantial amount of economic literature. Undescribable events in our model are understood by economic agents-their consequences and probabilities are known-but are such that every finite description of such events necessarily leaves out relevant features that have a non-negligible impact on the parties' expected utilities. We illustrate our results using a simple coinsurance problem as a backdrop. When the only uncertainty faced by the two agents is an undescribable event the optimal finite coinsurance contract is no contract at all.
Keywords:
INCOMPLETE CONTRACTS
CONTINGENCIES
COMPLEXITY
RENEGOTIATION
COSTS
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Journal

Review of Economic Studies cover
Review of Economic Studies
IF:
6.4
Papers:
2.5K
Citations:
2.1W

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