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On Watson'S Non-Forcing Contracts And Renegotiation

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  • Roberto Serrano

    ()
    (Brown University)

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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Bibliographic Info

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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Keywords: Contracts; renegotiation; mechanism desing.;

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References

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  1. Roberto Serrano & Antonio Cabrales, 2007. "Implemetation In Adaptive Better-Response Dynamics," Working Papers wp2007_0708, CEMFI.
  2. Enrique Sentana & Javier Mencía, 2008. "Multivariate Location-Scale Mixtures Of Normals And Mean-Variance-Skwness Portfolio Allocation," Working Papers wp2008_0805, CEMFI.
  3. Javier Mencía & Enrique Sentana, 2009. "Distributional tests in multivariate dynamic models with Normal and Student t innovations," Banco de Espa�a Working Papers 0929, Banco de Espa�a.
  4. Roberto Serrano & Allan M. Feldman, 2007. "Arrow’S Impossibility Theorem: Preference Diversity In A Single-Profile World," Working Papers wp2007_0710, CEMFI.
  5. Laura Hospido, 2007. "Modelling Heterogeneity And Dynamics In The Volatility Of Individual Wages," Working Papers wp2007_0717, CEMFI.
  6. Enrique Moral-Benito, 2007. "Determinants Of Economic Growth: A Bayesian Panel Data Approach," Working Papers wp2007_0719, CEMFI.
  7. Rafael Repullo & Jes�s Saurina & Carlos Trucharte, 2010. "Mitigating the pro-cyclicality of Basel II," Economic Policy, CEPR & CES & MSH, vol. 25, pages 659-702, October.
  8. Joel Watson, 2007. "Contract, Mechanism Design, and Technological Detail," Econometrica, Econometric Society, vol. 75(1), pages 55-81, 01.
  9. Aaron S. Edlin & Stefan Reichelstein, 1997. "Holdups, Standard Breach Remedies, and Optimal Investment," NBER Working Papers 5007, National Bureau of Economic Research, Inc.
  10. Samuel Bentolila & Juan Jose Dolado & Juan F. Jimeno, 2007. "Does Immigration Affect the Phillips Curve? Some Evidence for Spain," CESifo Working Paper Series 2166, CESifo Group Munich.
  11. Gerard Llobet & Anna Layne-Farrar & A. Jorge Padilla, 2008. "Are Joint Negotiations In Standard Stting "Reasonably Necessary"?," Working Papers wp2008_0808, CEMFI.
  12. Oliver Hart & John Moore, 1985. "Incomplete Contracts and Renegotiation," Working papers 367, Massachusetts Institute of Technology (MIT), Department of Economics.
  13. Rafael Repullo & Javier Suarez, 2008. "The Procyclical Effects Of Basel Ii," Working Papers wp2008_0809, CEMFI.
  14. Aguirregabiria, Victor & Mira, Pedro, 2010. "Dynamic discrete choice structural models: A survey," Journal of Econometrics, Elsevier, vol. 156(1), pages 38-67, May.
  15. Arellano, Manuel & Hansen, Lars Peter & Sentana, Enrique, 2012. "Underidentification?," Journal of Econometrics, Elsevier, vol. 170(2), pages 256-280.
  16. Roberto Serrano & Robert J. Aumann, 2007. "An Economic Index Of Riskiness," Working Papers wp2007_0706, CEMFI.
  17. Maskin, Eric & Moore, John, 1999. "Implementation and Renegotiation," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 39-56, January.
  18. repec:att:wimass:9714 is not listed on IDEAS
  19. Rene Saran & Roberto Serrano, 2007. "The Evolution of Bidding Behavior in Private-Values Auction and Double Auctions," Working Papers 2007-01, Brown University, Department of Economics.
  20. Segal, Ilya, 1999. "Complexity and Renegotiation: A Foundation for Incomplete Contracts," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 57-82, January.
  21. Enrique Sentana & Gabriele Fiorentini, 2007. "On The Efficiency And Consistency Of Likelihood Estimation In Multivariate Conditionally Heteroskedastic Dynamic Regression Models," Working Papers wp2007_0713, CEMFI.
  22. Stefano Gagliarducci & Tommaso Nannicini & Paolo Naticchioni, 2011. "Electoral Rules and Politicians' Behavior: A Micro Test," American Economic Journal: Economic Policy, American Economic Association, vol. 3(3), pages 144-74, August.
  23. Max Bruche & Javier Suarez, 2009. "The Macroeconomics Of Money Market Freezes," Working Papers wp2009_0901, CEMFI.
  24. Enrique Sentana, 2009. "The econometrics of mean-variance efficiency tests: a survey," Econometrics Journal, Royal Economic Society, vol. 12(3), pages C65-C101, November.
  25. 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.
  26. Roberto Serrano, 2007. "Cooperative Games: Core And Shapley Value," Working Papers wp2007_0709, CEMFI.
  27. Donald B. Hausch & Yeon-Koo Che, 1999. "Cooperative Investments and the Value of Contracting," American Economic Review, American Economic Association, vol. 89(1), pages 125-147, March.
  28. Rafael Repullo & David Martínez-Miera, 2008. "Does Competition Reduce The Risk Of Bank Failure?," Working Papers wp2008_0801, CEMFI.
  29. Enrique Sentana & Dante Amegual, 2008. "A Comparison Of Mean-Variance Efficiency Tests," Working Papers wp2008_0806, CEMFI.
  30. Max Bruche, 2009. "Bankruptcy Codes, Liquidation Timing, And Debt Valuation," Working Papers wp2009_0902, CEMFI.
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Citations

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Cited by:
  1. Serrano, Roberto & Vohra, Rajiv, 2010. "Multiplicity of mixed equilibria in mechanisms: A unified approach to exact and approximate implementation," Journal of Mathematical Economics, Elsevier, vol. 46(5), pages 775-785, September.
  2. Watson, Joel, 2002. "Contract, Mechanism Design, and Technological Detail," University of California at San Diego, Economics Working Paper Series qt18x0r2nn, Department of Economics, UC San Diego.
  3. Yusuke Kamishiro & Roberto Serrano, 2009. "Equilibrium Blocking in Large Quasilinear Economies," Working Papers 2009-12, Brown University, Department of Economics.

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