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On Watson'S Non-Forcing Contracts And Renegotiation

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Author Info
Roberto Serrano () (Brown University)

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Abstract

Watson (2007) proposes non-forcing contracts as a way to show the limitations of the mechanism design program with ex-post renegotiation (Maskin and Moore (1999)). If one takes a partial implementation approach, as Watson does, we show that nonforcing contracts do not constitute an intermediate paradigm between implementation with no renegotiation and with ex-post renegotiation. Moreover, taking a full implementation approach, non-forcing contracts fail if and only if one goes outside of the constraints identified by Maskin and Moore, because of the appearance of undesirable equilibria.

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Paper provided by CEMFI in its series Working Papers with number wp2009_0907.

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Date of creation: Sep 2009
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Handle: RePEc:cmf:wpaper:wp2009_0907

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Related research
Keywords: Contracts; renegotiation; mechanism desing.;

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Find related papers by JEL classification:
C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances
K10 - Law and Economics - - Basic Areas of Law - - - General (Constitutional Law)

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  1. Segal, Ilya, 1999. "Complexity and Renegotiation: A Foundation for Incomplete Contracts," Review of Economic Studies, Blackwell Publishing, vol. 66(1), pages 57-82, January. [Downloadable!] (restricted)
  2. Eric Maskin & John Moore, 1999. "Implementation and Renegotiation," Harvard Institute of Economic Research Working Papers 1863, Harvard - Institute of Economic Research.
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  3. 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)
  4. Ilya Segal & Michael D. Whinston, 2002. "The Mirrlees Approach to Mechanism Design with Renegotiation (with Applications to Hold-up and Risk Sharing)," Econometrica, Econometric Society, vol. 70(1), pages 1-45, January. [Downloadable!] (restricted)
  5. Joel Watson, 2002. "Contract, Mechanism Design, and Technological Detail," Theory workshop papers 505798000000000006, UCLA Department of Economics. [Downloadable!]
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  6. Hart, Oliver D & Moore, John, 1988. "Incomplete Contracts and Renegotiation," Econometrica, Econometric Society, vol. 56(4), pages 755-85, July. [Downloadable!] (restricted)
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  7. Edlin, Aaron S & Reichelstein, Stefan, 1996. "Holdups, Standard Breach Remedies, and Optimal Investment," American Economic Review, American Economic Association, vol. 86(3), pages 478-501, June. [Downloadable!] (restricted)
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