Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/108586
Authors: 
Gerratana, Emanuele
Koçkesen, Levent
Year of Publication: 
2012
Series/Report no.: 
Koç University-TÜSİAD Economic Research Forum Working Paper Series 1208
Abstract: 
This paper characterizes the equilibrium outcomes of two-stage games in which the second mover has private information and can sign renegotiable contracts with a neutral third-party. Our aim is to understand whether renegotiation-proof third-party contracts can confer a strategic advantage on the second mover. We first analyze non-renegotiable contracts and show that a "folk theorem" holds: Any outcome in which the second mover best responds to the first mover's action and the first mover obtains a payoff at least as large as his "individually rational payoff" can be supported. Renegotiation-proofness imposes some restrictions, which is most transparent in games with externalities, i.e., games in which the first mover's payoff increases (or decreases) in the second mover's action. In such games, a similar folk theorem holds with renegotation-proof contracts as well, but the firstmover's individually rational payoff is in general higher.
Subjects: 
Third-Party Contracts
Strategic Delegation
Renegotiation
Asymmetric Information
Renegotiation-Proofness
Durability
JEL: 
C72
D80
L13
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.