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Contract, Mechanism Design, and Technological Detail

  • Watson, Joel

This paper develops a theoretical framework for studying contract and enforcement in settings with nondurable trading opportunities and complete but unverifiable information. The framework explicitly accounts for the parties’ individual trade actions. The sets of implementable state-contingent payoffs, under various assumptions about renegotiation opportunities, are characterized and compared. The results indicate the benefit of modeling trade actions as individual, rather than as public, and they highlight the usefulness of a structured game-theoretic framework for applied research.

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Paper provided by Department of Economics, UC San Diego in its series University of California at San Diego, Economics Working Paper Series with number qt2m08n7cg.

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Date of creation: 01 Feb 2006
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Handle: RePEc:cdl:ucsdec:qt2m08n7cg
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  1. Thomas P. Lyon & Eric Rasmusen, 2004. "Buyer-Option Contracts Restored: Renegotiation, Inefficient Threats, and the Hold-Up Problem," Working Papers 2004-10, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  2. Kalai, Ehud & Ledyard, John, 1997. "Repeated Implementation," Working Papers 1027, California Institute of Technology, Division of the Humanities and Social Sciences.
  3. Alan Schwartz, 2004. "The Law and Economics of Costly Contracting," Journal of Law, Economics and Organization, Oxford University Press, vol. 20(1), pages 2-31, April.
  4. Roberto Serrano, 2009. "On Watson'S Non-Forcing Contracts And Renegotiation," Working Papers wp2009_0907, CEMFI.
  5. Nöldeke, Georg & Schmidt, Klaus M., 1995. "Option contracts and renegotiation: A solution to the Hold-Up Problem," Munich Reprints in Economics 19329, University of Munich, Department of Economics.
  6. Oliver Hart & John Moore, 1985. "Incomplete Contracts and Renegotiation," Working papers 367, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Nöldeke, Georg & Schmidt, Klaus M., 1998. "Sequential investments and options to own," Munich Reprints in Economics 19327, University of Munich, Department of Economics.
  8. 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.
  9. Schwartz, Alan & Watson, Joel, 2001. "The Law and Economics of Costly Contracting," University of California at San Diego, Economics Working Paper Series qt2wh8m7bv, Department of Economics, UC San Diego.
  10. Bull Jesse, 2008. "Costly Evidence Production and the Limits of Verifiability," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 8(1), pages 1-28, July.
  11. Abreu, Dilip & Pearce, David & Stacchetti, Ennio, 1986. "Optimal cartel equilibria with imperfect monitoring," Journal of Economic Theory, Elsevier, vol. 39(1), pages 251-269, June.
  12. Eric Maskin, 1999. "Nash Equilibrium and Welfare Optimality," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 23-38.
  13. Eric Maskin & John Moore, 1999. "Implementation and Renegotiation," Harvard Institute of Economic Research Working Papers 1863, Harvard - Institute of Economic Research.
  14. Ilya Segal, 1999. "Complexity and Renegotiation: A Foundation for Incomplete Contracts," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 57-82.
  15. Myerson, Roger B., 1982. "Optimal coordination mechanisms in generalized principal-agent problems," Journal of Mathematical Economics, Elsevier, vol. 10(1), pages 67-81, June.
  16. Oliver Hart & John Moore, 1998. "Foundations of incomplete contracts," LSE Research Online Documents on Economics 19354, London School of Economics and Political Science, LSE Library.
  17. Luca Anderlini, Leonardo Felli & Andrew Postlewaite, 2003. "Courts of Law and Unforeseen Contingencies," Working Papers gueconwpa~03-03-26, Georgetown University, Department of Economics.
  18. Moore, John & Repullo, Rafael, 1988. "Subgame Perfect Implementation," Econometrica, Econometric Society, vol. 56(5), pages 1191-1220, September.
  19. Edlin, Aaron S & Hermalin, Benjamin E, 2000. "Contract Renegotiation and Options in Agency Problems," Journal of Law, Economics and Organization, Oxford University Press, vol. 16(2), pages 395-423, October.
  20. Che, Y.K. & Hausch, D.B., 1997. "Cooperative Investments and the Value of Contracting," Working papers 9714, Wisconsin Madison - Social Systems.
  21. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1994. "Renegotiation Design with Unverifiable Information," Econometrica, Econometric Society, vol. 62(2), pages 257-82, March.
  22. Jean-Jacques LAFFONT & Jean TIROLE, 1990. "Adverse Selection and Renegotiation in Procurement," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9005, Université de Lausanne, Faculté des HEC, DEEP.
  23. Thomas P. Lyon & Eric Rasmusen, 2001. "Option Contracts and Renegotiation in Complex Environments," CIRJE F-Series CIRJE-F-118, CIRJE, Faculty of Economics, University of Tokyo.
  24. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
  25. Mathias Dewatripont, 1989. "Renegotiation and Information Revelation Over Time: The Case of Optimal Labor Contracts," The Quarterly Journal of Economics, Oxford University Press, vol. 104(3), pages 589-619.
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