Renegotiation Design with Unverifiable Information

DSpace/Manakin Repository

Renegotiation Design with Unverifiable Information

Citable link to this page

 

 
Title: Renegotiation Design with Unverifiable Information
Author: Aghion, Philippe; Dewatripont, Mathias; Rey, Patrick

Note: Order does not necessarily reflect citation order of authors.

Citation: Aghion, Philippe, Mathias Dewatripont, and Patrick Rey. 1994. “Renegotiation Design with Unverifiable Information.” Econometrica 62 (2) (March): 257.
Full Text & Related Files:
Abstract: This paper considers a buyer-seller relationship with observable but unverifiable investments and/or random utility parameters. In such situations, it is known that contract renegotiation may prevent the implementation of first-best outcomes. In this paper, we show however that efficient investments and optimal risk-sharing can typically be achieved provided the initial contract is able to monitor the ex post renegotiation process. Specifically, we focus on the following two features of renegotiation design. First, default options in case renegotiation breaks down; second, the allocation of all bargaining power to either contracting party. Moreover, we show that these two features can be obtained in standard Rubinstein bargaining games through contractual provisions, such as specific-performance clauses and penalties for delay (or, equivalently, financial "hostages" refundable without interest).
Published Version: doi:10.2307/2951613
Terms of Use: This article is made available under the terms and conditions applicable to Other Posted Material, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#LAA
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:12375014
Downloads of this work:

Show full Dublin Core record

This item appears in the following Collection(s)

 
 

Search DASH


Advanced Search
 
 

Submitters