A monotone comparative static result on contract incompleteness

Abstract

The purpose of this paper is to generalize the incomplete contract model of Bajari and Tadelis (2001) into a continuous model, and to derive the condition under which the monotone comparative statics (MCS) methods can be applied. I will show that a type of single-crossing condition on the isoprobability curves of uncertainty is necessary and sucient for the availability of the MCS methods when a player has a supermodular ex post utility function. In this case, the greater the magnitude of uncertainty, the less his optimal contract allows the project to proceed smoothly.