Double moral hazard and renegotiation
We examine renegotiation in a double moral hazard model when both the principal and the agent are allowed to make a renegotiation offer to a self-interested arbitrator at the renegotiation stage even though the principal proposes an initial contract. Under a belief restriction, any perfect-Bayesian equilibrium leads to an allocation that is superior to the second-best allocation of the standard double moral hazard model without renegotiation. The result of this paper gives some reasons for the existence of intermediary organizations such as holding companies, law houses, consulting firms, investment banks or venture capital if it is costly to introduce a third party a la Holmstrom (1982). The result can also provide the rationalization for a fund set up by a group of firms of the industry in which their product is legally required to be recyclable.
(This abstract was borrowed from another version of this item.)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ching-to Albert Ma, 1990.
"Renegotiation and Optimality in Agency Contracts,"
0004, Boston University - Industry Studies Programme.
- Drew Fudenberg & Jean Tirole, 1988.
"Moral Hazard and Renegotiation in Agency Contracts,"
494, Massachusetts Institute of Technology (MIT), Department of Economics.
- Fudenberg, Drew & Tirole, Jean, 1990. "Moral Hazard and Renegotiation in Agency Contracts," Econometrica, Econometric Society, vol. 58(6), pages 1279-1319, November.
- Benjamin E. Hermalin and Michael L. Katz., 1990.
"Moral Hazard and Verifiability: The Effects of Renegotiation in Agency,"
Economics Working Papers
90-141, University of California at Berkeley.
- Hermalin, Benjamin E & Katz, Michael L, 1991. "Moral Hazard and Verifiability: The Effects of Renegotiation in Agency," Econometrica, Econometric Society, vol. 59(6), pages 1735-53, November.
- Hermalin, Benjamin E. & Katz, Michael L., 1990. "Moral Hazard and Verifiability: The Effects of Renegotiation in Agency," Department of Economics, Working Paper Series qt1678w3w9, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Ishiguro, S. & Itoh, H., 1998.
"Moral Hazard and Renegotiation with Multiple Agents,"
ISER Discussion Paper
0471, Institute of Social and Economic Research, Osaka University.
- Ishiguro, Shingo & Itoh, Hideshi, 2001. "Moral Hazard and Renegotiation with Multiple Agents," Review of Economic Studies, Wiley Blackwell, vol. 68(1), pages 1-20, January.
- Matthews, Steven A, 1995.
"Renegotiation of Sales Contracts,"
Econometric Society, vol. 63(3), pages 567-89, May.
- Srabana Gupta & Richard E. Romano, 1998. "Monitoring the Principal with Multiple Agents," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 427-442, Summer.
- Hiroshi Osano, 1999. "Implementation of multi-agent incentive contracts with the principal's renegotiation offer," Review of Economic Design, Springer, vol. 4(2), pages 161-177.
- Osano, Hiroshi, 1998. "Moral hazard and renegotiation in multi-agent incentive contracts when each agent makes a renegotiation offer," Journal of Economic Behavior & Organization, Elsevier, vol. 37(2), pages 207-230, October.
When requesting a correction, please mention this item's handle: RePEc:eee:reecon:v:59:y:2005:i:4:p:345-364. See general information about how to correct material in RePEc.
If references are entirely missing, you can add them using this form.