Contract (re-)negotiation with private and common values

Arbeitspapier

We analyze the contracting problem of a principal who faces an agent with private information and cannot commit to not renegotiating a chosen contract. We model this by allowing the principal to propose new contracts any number of times after observing the contract choice of the agent. We propose a characterization of renegotiation-proof states of this (re-)negotiation and show that those states are supported by a perfect Bayesian equilibrium of an infinite horizon game. The characterization of renegotiation-proof states provides a tool, which is both powerful and simple to use, for finding such states in specific environments. We proceed by applying the results to adverse selection environments with private and common values. We show that with private values and common values of the "Spence" type only, fully efficient and separating states can be renegotiation-proof. With common values of the "Rothschild-Stiglitz" type inefficient and (partial) pooling states may be renegotiation-proof.

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• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ZEW Discussion Papers ; No. 17-056

Classification and Topics

• Classification: Wirtschaft ; Stochastic and Dynamic Games; Evolutionary Games; Repeated Games ; Bargaining Theory; Matching Theory ; Asymmetric and Private Information; Mechanism Design
• Subject: principal-agent models ; renegotiation ; Coase-conjecture

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Gretschko, Vitali ; Wambach, Achim
• Event: Veröffentlichung
• (who): Zentrum für Europäische Wirtschaftsforschung (ZEW)
• (where): Mannheim
• (when): 2017

Further information

• Handle: http://hdl.handle.net/10419/171740
• URN: urn:nbn:de:bsz:180-madoc-437510