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Mediated Renegotiation

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  • Attar, Andrea
  • Bozzoli, Lorenzo
  • Strausz, Roland

Abstract

We develop a new approach to contract renegotiation under informational frictions. Specically, we consider mediated mechanisms which cannot be contingent on any subsequent offer, but can generate a new source of asymmetric information between the contracting parties. Taking as a reference the canonical framework of Fudenberg and Tirole (1990), we show that, if mediated mechanisms are allowed, the corresponding renegotiation game admits only one equilibrium allocation, which coincides with the second-best one. Thus, the inefficiencies typically associated to the threat of renegotiation may be completely offset by the design of more sophisticated trading mechanisms.

Suggested Citation

  • Attar, Andrea & Bozzoli, Lorenzo & Strausz, Roland, 2024. "Mediated Renegotiation," TSE Working Papers 24-1522, Toulouse School of Economics (TSE).
    • Handle: RePEc:tse:wpaper:129278
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    References listed on IDEAS

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    1. Takuro Yamashita & Niccolò Lomys, 2022. "A mediator approach to mechanism design with limited commitment," Post-Print hal-04051960, HAL.
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      More about this item

      JEL classification:

      • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
      • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
      • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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