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Contract and Game Theory: Basic Concepts for Settings with Finite Horizons
Open AccessArticle

Solution Concepts of Principal-Agent Models with Unawareness of Actions

University of California at Berkeley, 4121 Etcheverry Hall, Berkeley, CA 94720, USA
Department of Economics, Hong Kong University of Science and Technology, Hong Kong
Author to whom correspondence should be addressed.
Games 2013, 4(3), 508-531;
Received: 14 February 2013 / Revised: 12 August 2013 / Accepted: 19 August 2013 / Published: 30 August 2013
(This article belongs to the Special Issue Contract Theory)
In numerous economic scenarios, contracting parties may not have a clear picture of all the relevant aspects. A contracting party may be unaware of what she and/or others are entitled to determine. Therefore, she may reject a contract that is too good to be true. Further, a contracting party may actively exert cognitive effort before signing a contract, so as to avoid being trapped into the contractual agreement ex post. In this paper, we propose a general framework to investigate these strategic interactions with unawareness, reasoning and cognition and intend to unify the solution concepts in the contracting context with unawareness. We build our conceptual framework upon the classical principal-agent relationship and compare the behaviors under various degrees of the unaware agent’s sophistication. View Full-Text
Keywords: unawareness; cognition; incomplete contracts; principal-agent relationship unawareness; cognition; incomplete contracts; principal-agent relationship
MDPI and ACS Style

Chen, Y.-J.; Zhao, X. Solution Concepts of Principal-Agent Models with Unawareness of Actions. Games 2013, 4, 508-531.

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