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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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  1. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1994. "Renegotiation Design with Unverifiable Information," Scholarly Articles 12375014, Harvard University Department of Economics.
  2. Schmitz, Patrick W., 2002. "On the Interplay of Hidden Action and Hidden Information in Simple Bilateral Trading Problems," MPRA Paper 12531, University Library of Munich, Germany.
  3. d'ASPREMONT, Claude & GERARD-VARET, Louis-André, . "Incentives and incomplete information," CORE Discussion Papers RP -354, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  10. Schmitz, Patrick W., 1998. "On Randomization in Coalition Contracts," MPRA Paper 13446, University Library of Munich, Germany.
  11. Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, vol. 29(2), pages 265-281, April.
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  24. repec:att:wimass:9714 is not listed on IDEAS
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  26. Farrell, Joseph & Gibbons, Robert, 1995. "Cheap Talk about Specific Investments," Journal of Law, Economics and Organization, Oxford University Press, vol. 11(2), pages 313-34, October.
  27. Schmitz, Patrick W, 1998. " Randomization in Coalition Contracts," Public Choice, Springer, vol. 94(3-4), pages 341-53, March.
  28. Nöldeke, Georg & Schmidt, Klaus M., 1997. "Sequential Investments and Options to Own," CEPR Discussion Papers 1645, C.E.P.R. Discussion Papers.
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  30. Aghion, P. & Dewatripont, M. & Rey, P., 1990. "On renegotiation design," European Economic Review, Elsevier, vol. 34(2-3), pages 322-329, May.
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