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Renegotiation-Proof Relational Contracts with Side Payments

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Author Info
Sebastian Kranz ()
Susanne Ohlendorf () (Department of Economics, University of Bonn, Adenauerallee 24-42, 53113 Bonn)

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Abstract

We study infinitely repeated two player games with perfect information, where each period consists of two stages: one in which the parties simultaneously choose an action and one in which they can transfer money to each other. We first derive simple conditions that allow a constructive characterization of all Pareto-optimal subgame perfect payoffs for all discount factors. Afterwards, we examine different concepts of renegotiation-proofness and extend the characterization to renegotiation-proof payoffs.

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Publisher Info
Paper provided by 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 in its series Discussion Papers with number 259.

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Date of creation: Apr 2009
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Handle: RePEc:trf:wpaper:259

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Related research
Keywords: renegotiation; infinitely repeated games; side payments; optimal penal codes;

Find related papers by JEL classification:
C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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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.:
  1. McCutcheon, Barbara, 1997. "Do Meetings in Smoke-Filled Rooms Facilitate Collusion?," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 330-50, April.
  2. Abreu, Dilip, 1988. "On the Theory of Infinitely Repeated Games with Discounting," Econometrica, Econometric Society, vol. 56(2), pages 383-96, March. [Downloadable!] (restricted)
  3. Katherine Doornik, 2006. "Relational Contracting in Partnerships," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 15(2), pages 517-548, 06. [Downloadable!] (restricted)
  4. Jonathan Levin, 2003. "Relational Incentive Contracts," American Economic Review, American Economic Association, vol. 93(3), pages 835-857, June. [Downloadable!]
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  5. Douglas Bernheim, B. & Ray, Debraj, 1989. "Collective dynamic consistency in repeated games," Games and Economic Behavior, Elsevier, vol. 1(4), pages 295-326, December. [Downloadable!] (restricted)
  6. Baliga, Sandeep & Evans, Robert, 2000. "Renegotiation in Repeated Games with Side-Payments," Games and Economic Behavior, Elsevier, vol. 33(2), pages 159-176, November. [Downloadable!] (restricted)
  7. Joseph E. Harrington, Jr, 2006. "How Do Cartels Operate?," Economics Working Paper Archive 531, The Johns Hopkins University,Department of Economics. [Downloadable!]
  8. Andersson, Ola & Wengstrom, Erik, 2007. "A note on renegotiation in repeated Bertrand duopolies," Economics Letters, Elsevier, vol. 95(3), pages 398-401, June. [Downloadable!] (restricted)
  9. Blonski, Matthias & Spagnolo, Giancarlo, 2002. "Relational Contracts and Property Rights," CEPR Discussion Papers 3460, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  10. Farrell, Joseph & Maskin, Eric, 1989. "Renegotiation in repeated games," Games and Economic Behavior, Elsevier, vol. 1(4), pages 327-360, December. [Downloadable!] (restricted)
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