IDEAS home Printed from https://ideas.repec.org/p/cla/uclatw/505798000000000006.html
   My bibliography  Save this paper

Contract, Mechanism Design, and Technological Detail

Author

Listed:
  • Joel Watson

Abstract

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.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Joel Watson, 2002. "Contract, Mechanism Design, and Technological Detail," Theory workshop papers 505798000000000006, UCLA Department of Economics.
  • Handle: RePEc:cla:uclatw:505798000000000006
    as

    Download full text from publisher

    File URL: http://econ.ucsd.edu/papers/files/2002-04.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hart, Oliver D & Moore, John, 1988. "Incomplete Contracts and Renegotiation," Econometrica, Econometric Society, vol. 56(4), pages 755-785, July.
    2. Oliver Hart & John Moore, 1999. "Foundations of Incomplete Contracts," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 115-138.
    3. Joel Watson, 2007. "Contract, Mechanism Design, and Technological Detail," Econometrica, Econometric Society, vol. 75(1), pages 55-81, January.
    4. Georg Noeldeke & Klaus Schmidt, 1998. "Sequential Investments and Options to Own," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 633-653, Winter.
    5. Andrew Postlewaite, 2007. "Courts of Law and Unforeseen Contingencies," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 23(3), pages 662-684, October.
    6. Moore, John & Repullo, Rafael, 1988. "Subgame Perfect Implementation," Econometrica, Econometric Society, vol. 56(5), pages 1191-1220, September.
    7. Ilya Segal & Michael D. Whinston, 2002. "The Mirrlees Approach to Mechanism Design with Renegotiation (with Applications to Hold-up and Risk Sharing)," Econometrica, Econometric Society, vol. 70(1), pages 1-45, January.
    8. Roberto Serrano, 2009. "On Watson's Non-Forcing Contracts and Renegotiation," Economics Bulletin, AccessEcon, vol. 29(3), pages 2350-2360.
    9. Eric Maskin & John Moore, 1999. "Implementation and Renegotiation," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 39-56.
    10. 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.
    11. 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.
    12. Kalai, Ehud & Ledyard, John O., 1998. "Repeated Implementation," Journal of Economic Theory, Elsevier, vol. 83(2), pages 308-317, December.
    13. 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.
    14. Bull, Jesse & Watson, Joel, 2004. "Evidence disclosure and verifiability," Journal of Economic Theory, Elsevier, vol. 118(1), pages 1-31, September.
    15. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1994. "Renegotiation Design with Unverifiable Information," Econometrica, Econometric Society, vol. 62(2), pages 257-282, March.
    16. 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.
    17. Eric Maskin, 1999. "Nash Equilibrium and Welfare Optimality," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 23-38.
    18. Oliver D. Hart & Jean Tirole, 1988. "Contract Renegotiation and Coasian Dynamics," Review of Economic Studies, Oxford University Press, vol. 55(4), pages 509-540.
    19. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
    20. Thomas P. Lyon, 2004. "Buyer-Option Contracts Restored: Renegotiation, Inefficient Threats, and the Hold-Up Problem," Journal of Law, Economics, and Organization, Oxford University Press, vol. 20(1), pages 148-169, April.
    21. 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.
    22. Bernheim, B Douglas & Whinston, Michael D, 1998. "Incomplete Contracts and Strategic Ambiguity," American Economic Review, American Economic Association, vol. 88(4), pages 902-932, September.
    23. Leonid Hurwicz, 1994. "Economic design, adjustment processes, mechanisms, and institutions," Review of Economic Design, Springer;Society for Economic Design, vol. 1(1), pages 1-14, December.
    24. 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.
    25. Nöldeke, Georg & Schmidt, Klaus M., 1995. "Option contracts and renegotiation," Munich Reprints in Economics 19329, University of Munich, Department of Economics.
    26. MacLeod, W Bentley & Malcomson, James M, 1993. "Investments, Holdup, and the Form of Market Contracts," American Economic Review, American Economic Association, vol. 83(4), pages 811-837, September.
    27. Alan Schwartz & Joel Watson, "undated". "The Law and Economics of Costly Contracting," Yale Law School John M. Olin Center for Studies in Law, Economics, and Public Policy Working Paper Series yale_lepp-1004, Yale Law School John M. Olin Center for Studies in Law, Economics, and Public Policy.
    28. 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.
    29. Myerson, Roger B., 1982. "Optimal coordination mechanisms in generalized principal-agent problems," Journal of Mathematical Economics, Elsevier, vol. 10(1), pages 67-81, June.
    30. 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.
    31. Ilya Segal, 1999. "Complexity and Renegotiation: A Foundation for Incomplete Contracts," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 57-82.
    32. Georg Noldeke & Klaus M. Schmidt, 1995. "Option Contracts and Renegotiation: A Solution to the Hold-Up Problem," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 163-179, Summer.
    33. Edlin, Aaron S & Reichelstein, Stefan, 1996. "Holdups, Standard Breach Remedies, and Optimal Investment," American Economic Review, American Economic Association, vol. 86(3), pages 478-501, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Joel Watson, 2013. "Contract and Game Theory: Basic Concepts for Settings with Finite Horizons," Games, MDPI, vol. 4(3), pages 1-40, August.
    2. Buzard, Kristy & Watson, Joel, 2012. "Contract, renegotiation, and hold up: Results on the technology of trade and investment," Theoretical Economics, Econometric Society, vol. 7(2), May.
    3. Buzard, Kristy & Watson, Joel, 2012. "Contract, renegotiation, and hold up: Results on the technology of trade and investment," Theoretical Economics, Econometric Society, vol. 7(2), May.
    4. Oliver Hart & John Moore, 2004. "Agreeing Now to Agree Later: Contracts that Rule Out but do not Rule In," Edinburgh School of Economics Discussion Paper Series 109, Edinburgh School of Economics, University of Edinburgh.
    5. James R. Brennan & Joel Watson, 2013. "The Renegotiation-Proofness Principle and Costly Renegotiation," Games, MDPI, vol. 4(3), pages 1-20, July.
    6. Hoppe, Eva I. & Schmitz, Patrick W., 2011. "Can contracts solve the hold-up problem? Experimental evidence," Games and Economic Behavior, Elsevier, vol. 73(1), pages 186-199, September.
    7. Watson, Joel & Wignall, Chris, 2009. "Hold-Up and Durable Trading Opportunities," University of California at San Diego, Economics Working Paper Series qt8p8284wg, Department of Economics, UC San Diego.
    8. Neeman, Zvika & Pavlov, Gregory, 2008. "Renegotiation-Proof Mechanism Design," Foerder Institute for Economic Research Working Papers 275717, Tel-Aviv University > Foerder Institute for Economic Research.
    9. Andreas Roider, 2004. "Asset Ownership and Contractibility of Interaction," RAND Journal of Economics, The RAND Corporation, vol. 35(4), pages 787-802, Winter.
    10. Ilya Segal & Michael D.Whinston, 2012. "Property Rights," Introductory Chapters, in: Robert Gibbons & John Roberts (ed.),: The Handbook of Organizational Economics, Princeton University Press.
    11. Göller, Daniel & Stremitzer, Alexander, 2014. "Breach remedies inducing hybrid investments," International Review of Law and Economics, Elsevier, vol. 37(C), pages 26-38.
    12. Bester, Helmut & Krähmer, Daniel, 2012. "Exit options in incomplete contracts with asymmetric information," Journal of Economic Theory, Elsevier, vol. 147(5), pages 1947-1968.
    13. Alexander Stremitzer, 2012. "Standard Breach Remedies, Quality Thresholds, and Cooperative Investments," Journal of Law, Economics, and Organization, Oxford University Press, vol. 28(2), pages 337-359.
    14. Guriev Sergei, 2003. "Incomplete Contracts with Cross-Investments," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 3(1), pages 1-32, August.
    15. Patrick W. Schmitz, 2005. "Should Contractual Clauses that Forbid Renegotiation Always be Enforced?," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 21(2), pages 315-329, October.
    16. Göller, Daniel & Stremitzer, Alexander, 2009. "Breach Remedies Including Hybrid Investments," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 282, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    17. Makoto Hanazono, 2004. "Holdup with Subsidized Investment," Econometric Society 2004 Far Eastern Meetings 640, Econometric Society.
    18. 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.
    19. Watson, Joel, 2006. "Contract and Mechanism Design in Settings with Multi-Period Trade," University of California at San Diego, Economics Working Paper Series qt63s1s3j6, Department of Economics, UC San Diego.
    20. Robert Gibbons, Editor & John Roberts, Editor, 2012. "The Handbook of Organizational Economics," Economics Books, Princeton University Press, edition 1, number 9889.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cla:uclatw:505798000000000006. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.dklevine.com/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: David K. Levine (email available below). General contact details of provider: http://www.dklevine.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.