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Renegotiation and Information Revelation over Time: The Case of Optimal Labor Contracts

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Author Info
Dewatripont, Mathias

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Abstract

This paper analyzes the issue of commitment in S. Grossman and O. Hart's model of optimal labor contracts under asymmetric information about firm profitability. The author extends his framework by allowing employment to vary over time, at equidistant intervals. When both parties can precommit ex ante not to renegotiate the contract, this replicates the Grossman-Hart outcome each subperiod. When precommitment is not possible, information revealed through the contract can create Pareto-improving renegotiation opportunities, and the issue of optimal information revelation arises. The paper analyzes the impact of ex post Pareto-improving renegotiations on the optimal contract. Copyright 1989, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Publisher Info
Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 104 (1989)
Issue (Month): 3 (August)
Pages: 589-619
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Handle: RePEc:tpr:qjecon:v:104:y:1989:i:3:p:589-619

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  2. Oliver Hart & John Moore, 2004. "Agreeing Now to Agree Later: Contracts that Rule Out but do not Rule In," NBER Working Papers 10397, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Michel Poitevin, 1995. "Contract Renegotiation and Organizational Design," CIRANO Working Papers 95s-03, CIRANO. [Downloadable!]
  4. Eric Maskin, 2001. "Auctions and Efficiency," Economics Working Papers 0002, Institute for Advanced Study, School of Social Science. [Downloadable!]
  5. Andrew Weiss & Ruqu Wang, 1990. "A Sorting Model of Labor Contracts: Implications for Layoffs and Wage-Tenure Profiles," NBER Working Papers 3448, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Buchmann, Gabriel & Neri, Marcelo Cortes, 2008. "The Brazilian Education Quality Index (Ideb): Measurement and Incentives Upgrades," Economics Working Papers (Ensaios Economicos da EPGE) 686, Graduate School of Economics, Getulio Vargas Foundation (Brazil). [Downloadable!]
  7. Helmut Bester & Roland Strausz, 2003. "Contracting with Imperfect Commitment and Noisy Communication," Discussion Papers 2, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
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  8. Battaglini, Marco, 2005. "Optimality and Renegotiation in Dynamic Contracting," CEPR Discussion Papers 5014, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  9. S. Ho, 2008. "Extracting the information: espionage with double crossing," Journal of Economics, Springer, vol. 93(1), pages 31-58, February. [Downloadable!] (restricted)
  10. Luca Anderlini & Leonardo Felli, 1998. "Costly Bargaining and Renegotiation - (Now published in Econometrica, 69(4) (March 2001), pp. 377-411.)," STICERD - Theoretical Economics Paper Series 361, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
  11. Martimort, David & De Donder, Philippe & De Villemeur, Étienne, 2003. "An Incomplete Contract Perspective on Public Good Provision," IDEI Working Papers 212, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
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  12. Helmut Bester & Roland Strausz, . "Imperfect Commitment and the Revelation Principle," Papers 004, Departmental Working Papers. [Downloadable!]
  13. Cheng Wang, 2000. "Renegotiation-Proof Dynamic Contracts with Private Information," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(3), pages 396-422, July. [Downloadable!] (restricted)
  14. Neri, Marcelo Cortes & Xerez, Marcelo Casal de, 2004. "Aspectos dinâmicos de um sistema de metas sociais," Economics Working Papers (Ensaios Economicos da EPGE) 563, Graduate School of Economics, Getulio Vargas Foundation (Brazil). [Downloadable!]
  15. Catherine Refait, 2005. "Soutien financier ou mise en faillite de l'entreprise? Comprendre la décision de la banque," Revue Finance Contrôle Stratégie, Editions Economica, vol. 8(1), pages 131-157, March. [Downloadable!]
  16. Marco Battaglini, 2003. "Long-Term Contracting with Markovian Consumers," Theory workshop papers 505798000000000048, UCLA Department of Economics. [Downloadable!]
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  17. Joel Watson, 2006. "Contract, Mechanism Design, and Technological Detail," University of California at San Diego, Economics Working Paper Series 2002-04R, Department of Economics, UC San Diego. [Downloadable!]
  18. Ching-mann Huang & Len-kuo Hu & Hsin-Hong Kang, 2005. "Compensation Design and Career Concerns of Fund Manager," Review of Quantitative Finance and Accounting, Springer, vol. 24(4), pages 379-397, June. [Downloadable!] (restricted)
  19. Eid, Florence, 2001. "Applying the decision rights to a case of hospital institutional design," Policy Research Working Paper Series 2726, The World Bank. [Downloadable!]
  20. Catherine C. de Fontenay & Joshua S. Gans, 2004. "Vertical Integration in the Presence of Upstream Competition," Department of Economics - Working Papers Series 904, The University of Melbourne. [Downloadable!]
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  21. Joel Watson, 2006. "Contract and Game Theory: Basic Concepts for Settings with Finite Horizons," University of California at San Diego, Economics Working Paper Series 2006-01, Department of Economics, UC San Diego. [Downloadable!]
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