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Discussion Papers, Kellogg School of Management, Northwestern University >
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http://hdl.handle.net/10419/59673
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| Title: | | Incomplete contracts in dynamic games  |
| Authors: | | Harstad, Bård |
| Issue Date: | | 2010 |
| Series/Report no.: | | Discussion Paper, Center for Mathematical Studies in Economics and Management Science 1504 |
| Abstract: | | I develop a dynamic model of costly private provision of public goods where agents can also invest in cost-reducing technologies. Despite the n+1 stocks in the model, the analysis is tractable and the (Markov perfect) equilibrium unique. The framework is used to derive optimal incomplete contracts in a dynamic setting. If the agents can contract on provision levels, but not on investments, they invest suboptimally little, particularly if the contract is short-term or close to its expiration date. To encourage sufficient investments, the optimal and equilibrium contract is more ambitious if it is short-lasting, and it is tougher to satisfy close to its expiration date. If renegotiation is possible, such a contract implements the first best. The results have important implications for how to design a climate treaty. |
| Subjects: | | dynamic private provision of public goods dynamic common-pool problems dynamic hold-up problems incomplete contracts renegotiation design climate change and climate agreements |
| JEL: | | D86 H87 Q54 F53 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Discussion Papers, Kellogg School of Management, Northwestern University
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