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Contract, Mechanism Design, and Technological Detail Author info | Abstract | Publisher info | Download info | Related research | Statistics Joel Watson (UC San Diego)
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This paper develops a theoretical framework for studying contract and enforcement in setting of complete, but unverifiable, information. The main point of the paper is that the consideration of renegotiation necessitates formal examination of other technological constraints, especially those having to do with the timing and nature of inalienable productive decisions. The main technical contributions include (a) results that characterize of the sets of implementable state-contingent payoffs under various assumptions about renegotiation opportunities, and (b) a result establishing conditions under which, when trading opportunities are durable and trade decisions are reversible, stationary contracts are optimal. The analysis refutes the validity of the "mechanism design with ex post renegotiation" program, it demonstrates the validity of other mechanism design models in dynamic environments, and it highlights the need for a more structured game-theoretic framework.
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Paper provided by Department of Economics, UC San Diego in its series University of California at San Diego, Economics Working Paper Series with number
2002-04.
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Date of creation: 01 Jan 2002Date of revision:
Handle: RePEc:cdl:ucsdec:2002-04Note: oai:cdlib1:Contact details of provider: Postal: 9500 Gilman Drive, La Jolla, CA 92093-0508 Phone: (858) 534-3383 Fax: (858) 534-7040 Web page: http://repositories.cdlib.org/ucsdecon/ More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: (Christopher F. Baum).
Keywords: renegotiation ; productive decisions ; mechanism design ; Other versions of this item:
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.: Segal, Ilya, 1999.
"Complexity and Renegotiation: A Foundation for Incomplete Contracts ,"
Review of Economic Studies ,
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Maskin, Eric, 1999.
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Other versions: Eric Maskin & John Moore, 1999.
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Harvard Institute of Economic Research Working Papers
1863, Harvard - Institute of Economic Research.
Other versions: Edlin, Aaron S & Hermalin, Benjamin E, 2000.
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417, University of Bonn, Germany, revised Aug 1993.
Other versions: Hart, Oliver & Moore, John, 1999.
"Foundations of Incomplete Contracts ,"
Review of Economic Studies ,
Blackwell Publishing, vol. 66(1), pages 115-38, January.
[Downloadable!] (restricted)
Other versions: Kalai, Ehud & Ledyard, John O., 1998.
"Repeated Implementation ,"
Journal of Economic Theory ,
Elsevier, vol. 83(2), pages 308-317, December.
[Downloadable!] (restricted)
Other versions:
Ehud Kalai & John O. Ledyard, 1997.
"Repeated Implementation ,"
Discussion Papers
1205, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
[Downloadable!] Kalai, Ehud & Ledyard, John, 1997.
"Repeated Implementation ,"
Working Papers
1027, California Institute of Technology, Division of the Humanities and Social Sciences.
[Downloadable!] Georg Noeldeke & Klaus Schmidt, 1998.
"Sequential Investments and Options to Own ,"
CESifo Working Paper Series
CESifo Working Paper No. , CESifo Group Munich.
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Other versions:
Nöldeke, Georg & Schmidt, Klaus M., 1997.
"Sequential Investments and Options to Own ,"
CEPR Discussion Papers
1645, C.E.P.R. Discussion Papers.
[Downloadable!] (restricted) Georg Noeldeke & Klaus Schmidt, 1998.
"Sequential Investments and Options to Own ,"
RAND Journal of Economics ,
The RAND Corporation, vol. 29(4), pages 633-653, Winter.
[Downloadable!] (restricted) Moore, John & Repullo, Rafael, 1988.
"Subgame Perfect Implementation ,"
Econometrica ,
Econometric Society, vol. 56(5), pages 1191-1220, September.
[Downloadable!] (restricted)
Luca Anderlini, Leonardo Felli & Andrew Postlewaite, .
"Courts of Law and Unforeseen Contingencies ,"
Working Papers
gueconwpa~03-03-26, Georgetown University, Department of Economics.
[Downloadable!]
Other versions:
Luca Anderlini & Leonardo Felli & Andrew Postlewaite, 2001.
"Courts of Law and Unforeseen Contingencies ,"
PIER Working Paper Archive
06-001, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 01 Jan 2006.
[Downloadable!] Anderlini, Luca & Felli, Leonardo & Postlewaite, Andrew, 2001.
"Courts of Law and Unforeseen Contingencies ,"
CEPR Discussion Papers
2835, C.E.P.R. Discussion Papers.
[Downloadable!] (restricted) Luca Anderlini & Leonardo Felli & Andrew Postlewaite, 2003.
"Courts of Law and Unforeseen Contingencies ,"
STICERD - Theoretical Economics Paper Series
447, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
[Downloadable!] Andrew Postlewaite, 2007.
"Courts of Law and Unforeseen Contingencies ,"
Journal of Law, Economics and Organization ,
Oxford University Press, vol. 23(3), pages 662-684, October.
[Downloadable!] (restricted) Yeon-Koo Che & Donald B. Hausch, 1999.
"Cooperative Investments and the Value of Contracting ,"
American Economic Review ,
American Economic Association, vol. 89(1), pages 125-147, March.
[Downloadable!] (restricted)
Thomas P. Lyon & Eric Rasmusen, 2001.
"Option Contracts and Renegotiation in Complex Environments ,"
CIRJE F-Series
CIRJE-F-118, CIRJE, Faculty of Economics, University of Tokyo.
[Downloadable!]
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:
Alan Schwartz & Joel Watson, 2001.
"The Law and Economics of Costly Contracting ,"
University of California at San Diego, Economics Working Paper Series
2001-21, Department of Economics, UC San Diego.
[Downloadable!] Alan Schwartz, 2004.
"The Law and Economics of Costly Contracting ,"
Journal of Law, Economics and Organization ,
Oxford University Press, vol. 20(1), pages 2-31, April.
Full
references Cited by : (explanations , Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.)
Oliver Hart & John Moore, 2004.
"AGREEING NOW TO AGREE LATER: Contracts that Rule Out but do not Rule In ,"
STICERD - Theoretical Economics Paper Series
/2004/472, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
[Downloadable!]
Other versions:
Oliver Hart & John Moore, 2004.
"Agreeing Now to Agree Later: Contracts that Rule Out but do not Rule In ,"
Harvard Institute of Economic Research Working Papers
2032, Harvard - Institute of Economic Research.
[Downloadable!] 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) Oliver Hart & John Moore, 2004.
"Agreeing Now to Agree Later: Contracts that Rule Out but do not Rule In ,"
ESE Discussion Papers
109, Edinburgh School of Economics, University of Edinburgh.
[Downloadable!] 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!]
Bernhard Ganglmair, 2008.
"Breakup of Repeat Transaction Contracts, Specific Investment, and Efficient Rent-Seeking ,"
JEPS Working Papers
08-001, JEPS.
[Downloadable!]
Roberto Serrano, 2004.
"On Watson’s Non-Forcing Contracts and Renegotiation ,"
Working Papers
2004-03, Brown University, Department of Economics.
[Downloadable!]
Other versions: Jim Brennan & Joel Watson, 2002.
"The Renegotiation-Proofness Principle and Costly Renegotiation ,"
University of California at San Diego, Economics Working Paper Series
2002-10, Department of Economics, UC San Diego.
[Downloadable!]
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!]
Schmitz, Patrick W., 2006.
"Book Review of “Contract Theory” (Bolton and Dewatripont, 2005) ,"
MPRA Paper
6977, University Library of Munich, Germany.
[Downloadable!]
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:
Alan Schwartz & Joel Watson, 2001.
"The Law and Economics of Costly Contracting ,"
University of California at San Diego, Economics Working Paper Series
2001-21, Department of Economics, UC San Diego.
[Downloadable!] Alan Schwartz, 2004.
"The Law and Economics of Costly Contracting ,"
Journal of Law, Economics and Organization ,
Oxford University Press, vol. 20(1), pages 2-31, April.
Thomas P. Lyon & Eric Rasmusen, 2004.
"Buyer-Option Contracts Restored: Renegotiation, Inefficient Threats, and the Hold-Up Problem ,"
Working Papers
2004-10, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
[Downloadable!]
Other versions:
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