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"Costly Coasian Contracts''

  • Luca Anderlini
  • Leonardo Felli

The authors identify and investigate the basic `hold-up' problem which arises whenever each party to a contingent contract has to pay some ex ante cost for the contract to become feasible. They then proceed to show that, under plausible circumstances, a contractual solution' to this hold-up problem is not available. This is because a contractual solution to the hold-up problem typically entails writing a `contract over a contract' which generates a fresh set of ex ante costs, and hence is associated with a new hold-up problem. The paper concludes by investigating two applications of the results to a static and to a dynamic principal-agent model.

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Paper provided by University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences in its series CARESS Working Papres with number 97-11.

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Handle: RePEc:wop:pennca:97-11
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  1. Raghuram G. Rajan & Luigi Zingales, . "Power in a Theory of the Firm," CRSP working papers 335, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  2. Innes, Robert D., 1990. "Limited liability and incentive contracting with ex-ante action choices," Journal of Economic Theory, Elsevier, vol. 52(1), pages 45-67, October.
  3. Benoit, Jean-Pierre & Krishna, Vijay, 1993. "Renegotiation in Finitely Repeated Games," Econometrica, Econometric Society, vol. 61(2), pages 303-23, March.
  4. Dilip Abreu & David Pearce & Ennio Stacchetti, 1989. "Renegotiation and Symmetry in Repeated Games," STICERD - Theoretical Economics Paper Series 198, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  5. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
  6. Anderlini, L. & Felli, L., 1997. "Costly Coasian Contracts," Cambridge Working Papers in Economics 9704, Faculty of Economics, University of Cambridge.
  7. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Scholarly Articles 4554125, Harvard University Department of Economics.
  8. Barton L. Lipman, 1992. "Limited Rationality and Endogenously Incomplete Contracts," Working Papers 858, Queen's University, Department of Economics.
  9. Nöldeke, Georg & Schmidt, Klaus M., 1995. "Option contracts and renegotiation: A solution to the Hold-Up Problem," Munich Reprints in Economics 19329, University of Munich, Department of Economics.
  10. Jong-Il Kim & Lawrence J. Lau, 1996. "The sources of Asian Pacific economic growth," Canadian Journal of Economics, Canadian Economics Association, vol. 29(s1), pages 448-54, April.
  11. Grossman, Sanford J. & Hart, Oliver D., 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Scholarly Articles 3450060, Harvard University Department of Economics.
  12. Abreu, Dilip & Rubinstein, Ariel, 1988. "The Structure of Nash Equilibrium in Repeated Games with Finite Automata," Econometrica, Econometric Society, vol. 56(6), pages 1259-81, November.
  13. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1994. "Renegotiation Design with Unverifiable Information," Econometrica, Econometric Society, vol. 62(2), pages 257-82, March.
  14. Hardman Moore, John & Hart, Oliver, 1985. "Incomplete Contracts and Renegotiation," CEPR Discussion Papers 60, C.E.P.R. Discussion Papers.
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  19. repec:cep:stitep:/1996/313 is not listed on IDEAS
  20. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475.
  21. Dye, Ronald A, 1985. "Costly Contract Contingencies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(1), pages 233-50, February.
  22. Piccione, M. & Rubinstein, A., 1992. "Finite Automata Play A Repeated Extensive Game," Papers 5-92, Tel Aviv.
  23. Piccione Michele & Rubinstein Ariel, 1993. "Finite Automata Play a Repeated Extensive Game," Journal of Economic Theory, Elsevier, vol. 61(1), pages 160-168, October.
  24. Piccione, Michele, 1992. "Finite automata equilibria with discounting," Journal of Economic Theory, Elsevier, vol. 56(1), pages 180-193, February.
  25. Rubinstein, Ariel & Wolinsky, Asher, 1992. "Renegotiation-Proof Implementation and Time Preferences," American Economic Review, American Economic Association, vol. 82(3), pages 600-614, June.
  26. Tai-Yeong Chung, 1991. "Incomplete Contracts, Specific Investments, and Risk Sharing," Review of Economic Studies, Oxford University Press, vol. 58(5), pages 1031-1042.
  27. Eric Maskin & Jean Tirole, 1997. "Unforseen Contingencies, Property Rights, and Incomplete Contracts," Harvard Institute of Economic Research Working Papers 1796, Harvard - Institute of Economic Research.
  28. Abrea Dilip & Pearce David & Stacchetti Ennio, 1993. "Renegotiation and Symmetry in Repeated Games," Journal of Economic Theory, Elsevier, vol. 60(2), pages 217-240, August.
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