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Marie-Louise Vierø, Bait contracts, Oxford Economic Papers, Volume 66, Issue 3, July 2014, Pages 702–720, https://doi.org/10.1093/oep/gpt041
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Abstract
This article explores contracting in the presence of ambiguity. It revisits Holmström’s sufficient statistic result of when to condition a contract on an outside signal. It is shown that if the signal is ambiguous, in the sense that its probability distribution is unknown, then Holmström’s result can be overturned. Specifically, uninformative ambiguous signals can be valuable.
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