DESCRIBABILITY AND AGENCY PROBLEMS

This paper suggests a reason, other than asymmetric information, why a gency contracts are not explicitly contingent on the agent's performan ce or actions. Two ingredients are essential to this reason. The first is the written form that contracts are required to take to be enforce able, The second is a form of discontinuity in the parties' preference s and in the technology that transforms actions into a (probabilistic) outcome, We show that under these conditions the chosen contract may not be explicitly contingent on the agent's actions although, in princ iple, such actions are contractible and observable to all parties to t he contract, court included.