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Contracts and Money Revisited

Author

Listed:
  • Martin Antoine

    (Federal Reserve Bank of New York)

  • Monnet Cyril

    (European Central Bank)

Abstract

Jovanovic and Ueda (1997) consider a principal-agent model with moral hazard and renegotiation. A noisy signal of the agent's output is observed before renegotiation takes place and actual output is revealed after renegotiation. If the agent is restricted to choose pure strategies it can be shown that the only renegotiation-proof contracts which induce optimal effort by the agent depend only on the signal and not on actual output. In this paper we show the restriction to pure strategies is crucial to the result, at least when the quality of the signal is not very good.

Suggested Citation

  • Martin Antoine & Monnet Cyril, 2006. "Contracts and Money Revisited," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(1), pages 1-15, January.
    • Handle: RePEc:bpj:bejmac:v:topics.6:y:2006:i:1:n:1
    DOI: 10.2202/1534-5998.1296
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    Cited by:

    1. Quadrini, Vincenzo & Meh, Césaire A. & Terajima, Yaz, 2015. "Limited Nominal Indexation of Optimal Financial Contracts," CEPR Discussion Papers 10330, C.E.P.R. Discussion Papers.
    2. Yaz Terajima & Vincenzo Quadrini & Cesaire Meh, 2009. "Real Effects of Price Stability with Endogenous Nominal Indexation," 2009 Meeting Papers 847, Society for Economic Dynamics.

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