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Renegotiation-Proof Dynamic Contracts with Private Information

Listed author(s):
  • Wang, Cheng

This paper studies the issue of renegotiation in a model of dynamic moral hazard. I introduce the notion of a renegotiation-proof dynamic contract. I show that the constraint of renegotiation-proofness can have the effect of setting a higher lower bound to the set of attainable expected utilities of the agent. This result extends the notion of "credit rationing" from the static models of optimal contracting to a dynamic setting, and is useful for thinking about competition for long-term contracts. This result also has implications for the long-run behavior of the expected utility of the agent under dynamic contracting. (Copyright: Elsevier)

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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers Archive with number 5248.

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Date of creation: 01 Jan 2000
Publication status: Published in Review of Economic Dynamics 2000, vol. 3, pp. 296-422
Handle: RePEc:isu:genres:5248
Contact details of provider: Postal:
Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070

Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
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  1. Oliver Hart & John Moore, 1985. "Incomplete Contracts and Renegotiation," Working papers 367, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Phelan Christopher, 1995. "Repeated Moral Hazard and One-Sided Commitment," Journal of Economic Theory, Elsevier, vol. 66(2), pages 488-506, August.
  3. Rogerson, William P, 1985. "Repeated Moral Hazard," Econometrica, Econometric Society, vol. 53(1), pages 69-76, January.
  4. Gauthier, Celine & Poitevin, Michel & Gonzalez, Patrick, 1997. "Ex Ante Payments in Self-Enforcing Risk-Sharing Contracts," Journal of Economic Theory, Elsevier, vol. 76(1), pages 106-144, September.
  5. Farrell, Joseph & Maskin, Eric, 1987. "Renegotiation in Repeated Games," Department of Economics, Working Paper Series qt9wv3h5jb, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  6. Andrew Atkeson & Robert E. Lucas, 1992. "On Efficient Distribution With Private Information," Review of Economic Studies, Oxford University Press, vol. 59(3), pages 427-453.
  7. Cheng Wang, 1995. "Dynamic Insurance with Private Information and Balanced Budgets," Review of Economic Studies, Oxford University Press, vol. 62(4), pages 577-595.
  8. Fudenberg, Drew & Tirole, Jean, 1990. "Moral Hazard and Renegotiation in Agency Contracts," Econometrica, Econometric Society, vol. 58(6), pages 1279-1319, November.
  9. Bergin James & MacLeod W. Bentley, 1993. "Efficiency and Renegotiation in Repeated Games," Journal of Economic Theory, Elsevier, vol. 61(1), pages 42-73, October.
  10. van Damme, E.E.C., 1989. "Renegotiation-proof equilibria in repeated prisoners' dilemma," Other publications TiSEM df9180a1-537e-4331-9f2a-7, Tilburg University, School of Economics and Management.
  11. Thomas, Jonathan & Worrall, Tim, 1990. "Income fluctuation and asymmetric information: An example of a repeated principal-agent problem," Journal of Economic Theory, Elsevier, vol. 51(2), pages 367-390, August.
  12. 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.
  13. Wang, Cheng, 1995. "Dynamic Insurance with Private Information and Balanced Budgets," Staff General Research Papers Archive 5249, Iowa State University, Department of Economics.
  14. Douglas Bernheim, B. & Ray, Debraj, 1989. "Collective dynamic consistency in repeated games," Games and Economic Behavior, Elsevier, vol. 1(4), pages 295-326, December.
  15. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  16. Benoit, Jean-Pierre & Krishna, Vijay, 1993. "Renegotiation in Finitely Repeated Games," Econometrica, Econometric Society, vol. 61(2), pages 303-323, March.
  17. David G. Pearce, 1987. "Renegotiation-Proof Equilibria: Collective Rationality and Intertemporal Cooperation," Cowles Foundation Discussion Papers 855, Cowles Foundation for Research in Economics, Yale University.
  18. Stephen E. Spear & Sanjay Srivastava, 1987. "On Repeated Moral Hazard with Discounting," Review of Economic Studies, Oxford University Press, vol. 54(4), pages 599-617.
  19. Narayana R. Kocherlakota, 1996. "Implications of Efficient Risk Sharing without Commitment," Review of Economic Studies, Oxford University Press, vol. 63(4), pages 595-609.
  20. Christopher Phelan & Robert M. Townsend, 1991. "Computing Multi-Period, Information-Constrained Optima," Review of Economic Studies, Oxford University Press, vol. 58(5), pages 853-881.
  21. Rogerson, William P, 1985. "The First-Order Approach to Principal-Agent Problems," Econometrica, Econometric Society, vol. 53(6), pages 1357-1367, November.
  22. Christopher Phelan & Robert M Townsend, 2010. "Computing Multi-Period, Information Constrained Optima," Levine's Working Paper Archive 117, David K. Levine.
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