Randomization in coalition contracts |
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Authors: | Schmitz Patrick W |
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Institution: | 1. University of Bonn, Wirtschaftspolitische Abteilung, Adenauerallee 24-42, D-53113, Bonn, Germany
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Abstract: | This article analyzes a much debated clause in the coalition contract between SPD and FDP 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. |
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