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dc.contributor.authorStrulovici, Brunoen_US
dc.description.abstractHow does renegotiation affect contracts between a principal and an agent subject to persistent private information and moral hazard? This paper introduces a concept of renegotiationproofness, which adapts to stochastic games the concepts of weak renegotiation-proofness and internal consistency by exploiting natural comparisons across states. When the agent has exponential utility and cost of effort, each separating renegotiation-proof contract is characterized by a single sensitivity parameter, which determines how the agent's promised utility varies with reported cash flows. The optimal contract among those always causes immiserization. Reducing the agent's cost of effort can harm the principal by increasing the tension between moral hazard and reporting problems. Truthfulness of the constructed contracts is obtained by allowing jumps in cash flow reports and turning the agent's reporting problem into an impulse control problem. This approach shows that self-correcting reports are optimal of the equilibrium path. The paper also discusses the case of partially pooling contracts and of permanent outside options for the agent, illustrating the interaction between cash-flow persistence, renegotiation, moral hazard, and information revelation.en_US
dc.publisher|aNorthwestern Univ., Kellogg Graduate School of Management, Center for Mathematical Studies in Economics and Management Science |cEvanstonen_US
dc.relation.ispartofseries|aDiscussion Paper, Center for Mathematical Studies in Economics and Management Science |x1519en_US
dc.subject.keywordRepeated Agencyen_US
dc.subject.keywordAsymmetric Informationen_US
dc.subject.keywordPersistent Informationen_US
dc.subject.keywordContract Theoryen_US
dc.subject.keywordPrincipal Agenten_US
dc.subject.keywordLimited Commitmenten_US
dc.subject.keywordRecursive Contractsen_US
dc.titleRenegotiation-proof contracts with moral hazard and persistent private informationen_US
dc.typeWorking Paperen_US

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