IDEAS home Printed from
   My bibliography  Save this article

Incomplete Contracts. Non-Contractible Quality, and Renegotiation


  • Lülfesmann Christoph

    () (University of Bonn)


The paper reconsiders the hold-up problem in long-term bilateral trade with specific investments. In our framework, the parties face several trading opportunities (goods) whose characteristics cannot be described at the start of the relationship. Specifically, there exists an investment responsive `innovative' good, and (at least one) non-responsive `standard' good. In line with Hart and Moore (1988), renegotiation takes place as outside option bargaining. We first establish a first-best outcome for the case where trading the innovation is always efficient. This results contrasts with findings in Segal (1999) and Hart and Moore (1999) who adopt an alternative view of renegotiation. Then, we consider a setting where final trade is not always efficient, and show that a properly chosen at-will contract still implements the first best for a non-empty set of parameterizations. Finally, we show that at-will contracts strictly outperform option or specific-performance contracts.

Suggested Citation

  • Lülfesmann Christoph, 2001. "Incomplete Contracts. Non-Contractible Quality, and Renegotiation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 1(1), pages 1-47, June.
  • Handle: RePEc:bpj:bejtec:v:contributions.1:y:2001:i:1:n:2

    Download full text from publisher

    File URL:
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.

    As the access to this document is restricted, you may want to search for a different version of it.


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Dieter Bös & Christoph Lülfesmann, 2001. "Holdups, Quality Choice, and the Achilles' Heel in Government Contracting," Bonn Econ Discussion Papers bgse28_2001, University of Bonn, Germany.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:bejtec:v:contributions.1:y:2001:i:1:n:2. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.