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Mechanism Design with Renegotiation and Costly Messages

According to standard theory, the set of implementable outcome functions is reduced if the mechanism or contract can be renegotiated ex post. In some cases contracts can achieve nothing and so, for example, the holdup problem may be severe. This paper shows that if the mechanism is designed in such a way that sending a message involves a small cost (e.g., the opportunity cost of time spent attending a hearing) then ex post renegotiation essentially does not restrict the set of implementable functions. Any Pareto-efficient, bounded social choice function can be implemented in subgame-perfect equilibrium, for any strictly positive message cost.

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File URL: http://www.econ.cam.ac.uk/research/repec/cam/pdf/cwpe0626.pdf
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Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0626.

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Length: 20
Date of creation: Mar 2006
Date of revision:
Handle: RePEc:cam:camdae:0626
Note: ET
Contact details of provider: Web page: http://www.econ.cam.ac.uk/index.htm

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  1. Maskin, Eric & Sjostrom, Tomas, 2001. "Implementation Theory," Working Papers 5-01-1, Pennsylvania State University, Department of Economics.
  2. Ariel Rubinstein & Asher Wolinsky, 1990. "Renegotiation-Proof Implementation and Time Preferences," STICERD - Theoretical Economics Paper Series /1990/215, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  3. repec:cdl:ucsdec:142242 is not listed on IDEAS
  4. Eric Maskin & John Moore, 1999. "Implementation and Renegotiation," Harvard Institute of Economic Research Working Papers 1863, Harvard - Institute of Economic Research.
  5. Segal, Ilya, 1999. "Complexity and Renegotiation: A Foundation for Incomplete Contracts," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 57-82, January.
  6. Glazer, Jacob & Rubinstein, Ariel, 1998. "Motives and Implementation: On the Design of Mechanisms to Elicit Opinions," Journal of Economic Theory, Elsevier, vol. 79(2), pages 157-173, April.
  7. Bull, Jesse & Watson, Joel, 2000. "Evidence Disclosure and Verifiability," University of California at San Diego, Economics Working Paper Series qt6th0060j, Department of Economics, UC San Diego.
  8. Sandeep Baliga & Tomas Sjöström, 2009. "Contracting with Third Parties," American Economic Journal: Microeconomics, American Economic Association, vol. 1(1), pages 75-100, February.
  9. Oliver Hart & John Moore, 1998. "Foundations of Incomplete Contracts," NBER Working Papers 6726, National Bureau of Economic Research, Inc.
  10. Donald B. Hausch & Yeon-Koo Che, 1999. "Cooperative Investments and the Value of Contracting," American Economic Review, American Economic Association, vol. 89(1), pages 125-147, March.
  11. Maskin, Eric & Tirole, Jean, 1999. "Unforeseen Contingencies and Incomplete Contracts," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 83-114, January.
  12. Green, Jerry R & Laffont, Jean-Jacques, 1986. "Partially Verifiable Information and Mechanism Design," Review of Economic Studies, Wiley Blackwell, vol. 53(3), pages 447-56, July.
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