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Renegotiation Before Contract Execution

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  • Achim Wambach

    (University of Munich)

Abstract

By offering or choosing a contract the informed agent might reveal information to the principal which could be used for immediate renegotiation. This is discussed in an axiomatic approach. We show that if, given the revealed information, there exists a contract which is preferred by everyone, the former contract could not have been renegotiation proof. For private values and common values of the 'Spence' type, a generalised Coase Conjecture holds: The principal cannot raise her profit by offering inefficient contracts to the agent. Only for common values of the 'Rothschild-Stiglitz' type, inefficient, but pooling, contracts are possible.

Suggested Citation

  • Achim Wambach, 2000. "Renegotiation Before Contract Execution," Econometric Society World Congress 2000 Contributed Papers 0775, Econometric Society.
  • Handle: RePEc:ecm:wc2000:0775
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    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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