B02
Optimal Dynamic Contracting
Summary

Project summary

Project B02 studies long-term contracts. These contracts require trust in credible incentives forthe contract’s entire lifetime. Ambiguity and a lack of or doubts about enforceability can easily undermine trust in credible incentives. Thus, ambiguity and enforceability issues can raise questions about the effectiveness of long-term contracts. In other instances, ambiguity might ease enforceability by creating uncertainty about the potential gains from deviations. Project B02 is to analyze these issues and thereby obtain novel and valuable insights regarding the economic performance of individuals and firms. A further important interest is studying the dynamics of belief formation over the course of long-term contracts.