ECO.5:11 - SoTA-Echoing

Akerlof (1970), §IV identifies arrangements such as guarantees that respond to hidden quality. Holmström (1979), introduction and concluding remarks examines the trade-off between incentives, risk sharing and information about hidden action. These historical mechanisms motivate the two branches here; their model conclusions retain their assumptions.

The rival is an ordinary contract plus direct observation. Keep it when sufficiently inexpensive and informative. This pattern adds a comparison of feasible terms when observation is incomplete or costly. It does not turn a mechanism’s mathematical possibility into actual enforceability or proven field effectiveness. Reopen when participation, available actions, signal quality or enforcement changes.