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Renegotiation Design with Unverifiable Information

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  • Aghion, Philippe
  • Dewatripont, Mathias
  • Rey, Patrick

Abstract

It has been emphasized that when contracts are incomplete (e.g., because some relevant variables are not verifiable by outsiders), the possibility of contract negotiation may prevent achieving desirable allocations that could be implemented otherwise. The authors analyze a situation where renegotiation is always possible but contracts can influence the renegotiation process; they show that some flexibility in the choice of this process allows to achieve efficiency in a variety of situations, including optimal risk-sharing and investment decisions. Copyright 1994 by The Econometric Society.

Suggested Citation

  • Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1994. "Renegotiation Design with Unverifiable Information," Econometrica, Econometric Society, vol. 62(2), pages 257-282, March.
    • Handle: RePEc:ecm:emetrp:v:62:y:1994:i:2:p:257-82
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