Contract Renegotiation with Time-Varying Valuations
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.
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Volume (Year): 7 (1998)
Issue (Month): 3 (09)
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