Contract Renegotiation: A Simple Framework and Implications for Organization Theory
This paper provides a unifying framework for studying renegotiation of contracts in the presence of asymmetric information. We show that interim renegotiation does not constrain the set of contracts attainable with full commitment, regardless of whether renegotiation offers are made by the informed or the uninformed agent. Ex post renegotiation, however, does constrain the set of attainable contracts. These constraints depend on the identity of the agent making the renegotiation offer. We then show how the theory of contract renegotiation can provide insights for organization theory. Specifically, we show how decentralization of decision making can be an optimal response to the threat of ex post renegotiation. Finally, we show that our framework can be used to analyse the trade-off between internal and external markets.
Volume (Year): 28 (1995)
Issue (Month): 2 (May)
|Contact details of provider:|| Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4|
Web page: http://economics.ca/cje/
More information through EDIRC
|Order Information:|| Web: http://economics.ca/en/membership.php Email: |
When requesting a correction, please mention this item's handle: RePEc:cje:issued:v:28:y:1995:i:2:p:302-35. 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: (Prof. Werner Antweiler)
If references are entirely missing, you can add them using this form.