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Contract Renegotiation with Time-Varying Valuations

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  • Andreas Blume

Abstract

The paper characterizes optimal renegotiation-proof rental contracts in a model with adverse selection and hidden information. It generalizes the work of Hart and Tirole (1988) to the case of time-varying valuations. The paper considers a durable-goods monopolist who serves a nonanonymous buyer with time-varying valuation for the seller's good. The buyer's valuation has a persistent and a transient component; both are private information. The paper shows that for some range of prior beliefs the seller strictly prefers leasing to selling. Copyright (c) 1998 Massachusetts Institute of Technology.

Suggested Citation

  • Andreas Blume, 1998. "Contract Renegotiation with Time-Varying Valuations," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(3), pages 397-433, September.
  • Handle: RePEc:bla:jemstr:v:7:y:1998:i:3:p:397-433
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    Cited by:

    1. Huan Xie, 2013. "Bargaining with uncertain value distributions," Economics Bulletin, AccessEcon, vol. 33(2), pages 1047-1066.
    2. Battaglini, Marco, 2007. "Optimality and renegotiation in dynamic contracting," Games and Economic Behavior, Elsevier, vol. 60(2), pages 213-246, August.
    3. Alessandro Acquisti, 2014. "Inducing Customers to Try New Goods," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 44(2), pages 131-146, March.
    4. Reiche, S., 2008. "Sequential Screening and Renegotiation," Cambridge Working Papers in Economics 0820, Faculty of Economics, University of Cambridge.

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