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Limited Contract Enforcement and Strategic Renegotiation

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Author Info
Huberman, Gur
Kahn, Charles M

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Abstract

This paper presents a strategic theory of contract renegotiation. In this theory, suboptimal contracts are put in place initially to protect one party against undesirable a ctions by another party and are renegotiated once the danger is past. The authors develop a model to establish the cases in which simple contracts cannot achieve desirable outcomes, so that only a complicated contract or renegotiation will serve. Unlike most previous accounts of contract renegotiation, this theory does not rely on exogenous uncertainty to motivate renegotiation. Copyright 1988 by American Economic Association.

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Publisher Info
Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 78 (1988)
Issue (Month): 3 (June)
Pages: 471-84
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Handle: RePEc:aea:aecrev:v:78:y:1988:i:3:p:471-84

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  1. Bernhard Ganglmair, 2008. "Breakup of Repeat Transaction Contracts, Specific Investment, and Efficient Rent-Seeking," JEPS Working Papers 08-001, JEPS. [Downloadable!]
  2. Schmitz, Patrick W., 1998. "On Randomization in Coalition Contracts," MPRA Paper 13446, University Library of Munich, Germany. [Downloadable!]
  3. Alan Schwartz & Joel Watson, 2000. "Economic and Legal Aspects of Costly Recontracting," University of California at San Diego, Economics Working Paper Series 2000-05, Department of Economics, UC San Diego. [Downloadable!]
    Other versions:
  4. Alan Schwartz & Joel Watson, . "The Law and Economics of Costly Contracting," Yale Law School John M. Olin Center for Studies in Law, Economics, and Public Policy Working Paper Series yale_lepp-1004, Yale Law School John M. Olin Center for Studies in Law, Economics, and Public Policy. [Downloadable!]
    Other versions:
  5. Schmitz, Patrick W., 2001. "The Hold-Up Problem and Incomplete Contracts: A Survey of Recent Topics in Contract Theory," MPRA Paper 12562, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  6. Patrick Schmitz, 1998. "Randomization in coalition contracts," Public Choice, Springer, vol. 94(3), pages 341-353, March. [Downloadable!] (restricted)
    Other versions:
  7. Schmitz, Patrick W., 2006. "Book Review of “Contract Theory” (Bolton and Dewatripont, 2005)," MPRA Paper 6977, University Library of Munich, Germany. [Downloadable!]
  8. Marvin Goodfriend & Jeffrey M. Lacker, 1999. "Limited commitment and central bank lending," Working Paper 99-02, Federal Reserve Bank of Richmond. [Downloadable!]
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  9. Patrick W. Schmitz, 2005. "Should Contractual Clauses that Forbid Renegotiation Always be Enforced?," Bonn Econ Discussion Papers bgse26_2005, University of Bonn, Germany. [Downloadable!]
    Other versions:
  10. Green, Jerry & Laffont, Jean-Jacques., 1988. "Renegotiation and the Form of Efficient Contracts," Working Papers 672, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
    Other versions:
  11. Jeffrey M. Lacker, 1989. "Limited commitment and costly enforcement," Working Paper 90-02, Federal Reserve Bank of Richmond. [Downloadable!]
  12. Mark Carey S. & Stephen Prowse & John Rea & Gregory Udell, 1993. "The economics of the private placement market," Staff Studies 166, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  13. Lynn Fisher, 2006. "Renegotiation in the Common Law Mortgage and the Impact of Equitable Redemption," The Journal of Real Estate Finance and Economics, Springer, vol. 32(1), pages 61-82, February. [Downloadable!] (restricted)
  14. William P. Rogerson, 1990. "Contractual Solutions to the Hold-Up Problem," Discussion Papers 873, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  15. Steven A. Matthews, 1993. "Renegotiation of Sales Contracts," Discussion Papers 1051, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
    Other versions:
  16. Schmitz, Patrick W., 2002. "On simple contracts, renegotiation under asymmetric information, and the hold-up problem," MPRA Paper 12530, University Library of Munich, Germany. [Downloadable!]
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