Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/171740
Authors: 
Gretschko, Vitali
Wambach, Achim
Year of Publication: 
2017
Series/Report no.: 
ZEW Discussion Papers 17-056
Abstract: 
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.
Subjects: 
principal-agent models
renegotiation
Coase-conjecture
JEL: 
C73
C78
D82
Document Type: 
Working Paper

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