The authors examine the effects of renegotiation in an agency relationship. They show how renegotiation affects (1) the set of actions the principal can induce the agent to take and (2) the cost of implementing a given action. The authors show that, when the principal receives an unverifiable signal of the agent's action, renegotiation can improve welfare. This result stands in contrast to earlier findings that renegotiation lowers welfare when the principal receives no signal about the agent's action prior to renegotiation. Copyright 1991 by The Econometric Society.
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Article provided by Econometric Society in its journal Econometrica.
Volume (Year): 59 (1991) Issue (Month): 6 (November) Pages: 1735-53 Download reference. The following formats are available: HTML
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