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On simple contracts, renegotiation under asymmetric information, and the hold-up problem

  • Schmitz, Patrick W.

In this paper it is demonstrated that voluntary bargaining over a collective decision under asymmetric information may well lead to ex post efficiency if the default decision is non-trivial. It is argued that the default decision may be interpreted as a 'simple' contract that the parties have written ex ante. This result is used in order to show that simple unconditional contracts which are renegotiated may allow the hold-up problem to be solved, even if the parties' valuations are private information.

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File URL: http://mpra.ub.uni-muenchen.de/12530/1/MPRA_paper_12530.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 12530.

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Date of creation: 2002
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Handle: RePEc:pra:mprapa:12530
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  26. Chung, Tai-Yeong, 1991. "Incomplete Contracts, Specific Investments, and Risk Sharing," Review of Economic Studies, Wiley Blackwell, vol. 58(5), pages 1031-42, October.
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  29. Bulow, Jeremy & Roberts, John, 1989. "The Simple Economics of Optimal Auctions," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1060-90, October.
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  35. Schmitz, Patrick W., 1998. "On Randomization in Coalition Contracts," MPRA Paper 13446, University Library of Munich, Germany.
  36. William P. Rogerson, 1984. "Efficient Reliance and Damage Measures for Breach of Contract," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 39-53, Spring.
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  40. Hermalin, Benjamin E & Katz, Michael L, 1993. "Judicial Modification of Contracts between Sophisticated Parties: A More Complete View of Incomplete Contracts and Their Breach," Journal of Law, Economics and Organization, Oxford University Press, vol. 9(2), pages 230-55, October.
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