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Adverse Selection and Renegotiation in Procurement

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  • Jean-Jacques Laffont
  • Jean Tirole

Abstract

As was shown by Dewatripont, optimal long-term contracts under asymmetric information are generally not time-consistent. This paper fully characterizes the equilibrium of a two-period procurement model with commitment and renegotiation. It also analyzes whether renegotiated long-term contracts yield outcomes resembling those under either unrenegotiated long-term contracts or a sequence of short-term contracts, and links the analysis with the multiple unit durable good monopoly problem.

Suggested Citation

  • Jean-Jacques Laffont & Jean Tirole, 1990. "Adverse Selection and Renegotiation in Procurement," Review of Economic Studies, Oxford University Press, vol. 57(4), pages 597-625.
  • Handle: RePEc:oup:restud:v:57:y:1990:i:4:p:597-625.
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