Optimal multilateral contracts

Stefan Krasa, Anne P. Villamil

Research output: Contribution to journalArticlepeer-review


The purpose of this paper is to derive the structure of optimal multilateral contracts in a costly state verification model with multiple agents who may be risk averse and need not be identical. We consider two different verification technology specifications. When the verification technology is deterministic, we show that the optimal contract is a multilateral debt contract in the sense that the monitoring set is a lower interval. When the verification technology is stochastic, we show that transfers and monitoring probabilities are decreasing functions of wealth. The key economic problem in this environment is that optimal contracts are interdependent. We are able to resolve this interdependency problem by using abstract measure theoretic tools.

Original languageEnglish (US)
Pages (from-to)167-187
Number of pages21
JournalEconomic Theory
Issue number2
StatePublished - Mar 1994

ASJC Scopus subject areas

  • Economics and Econometrics


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