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Renegotiation in agency contracts, menus vs. simple contracts

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  • Nicolas Boccard

    () (Departament d'Econòmiques, Universitat de Girona, Campus de Montilivi, 17071 Girona, Spain)

Abstract

The literature on contracts has shown that renegotiation in agency relationships generates efficiency losses when the principal leads the renegotiation. We show that contractual incompleteness may reduce such efficiency loss. This provides an explanation to the widespread use of simple contracts. We further point at the limited liability of the agent as a source of inefficiency when he leads the renegotiation; this latter result tempers the irrelevancy of contractual incompleteness demonstrated earlier in the literature.

Suggested Citation

  • Nicolas Boccard, 2002. "Renegotiation in agency contracts, menus vs. simple contracts," Spanish Economic Review, Springer;Spanish Economic Association, vol. 4(4), pages 261-279.
  • Handle: RePEc:spr:specre:v:4:y:2002:i:4:p:261-279
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    Keywords

    Contracts; renegotiation;

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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