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Renegotiation and information revelation over time: the case of optimal labor contacts

  • Mathias Dewatripont

This paper analyzes the issue of commitment in S. Grossman and O. Hart's model of optimal labor contracts under asymmetric information about firm profitability. The author extends his framework by allowing employment to vary over time, at equidistant intervals. When both parties can precommit ex ante not to renegotiate the contract, this replicates the Grossman-Hart outcome each subperiod. When precommitment is not possible, information revealed through the contract can create Pareto-improving renegotiation opportunities, and the issue of optimal information revelation arises. The paper analyzes the impact of ex post Pareto-improving renegotiations on the optimal contract. Copyright 1989, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Paper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/9573.

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Date of creation: 1989
Date of revision:
Publication status: Published in: The Quarterly Journal of Economics (1989) v.104,p.589-619
Handle: RePEc:ulb:ulbeco:2013/9573
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