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Contract Design With Limited Commitment

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  • Gretschko, Vitali
  • Wambach, Achim

Abstract

We consider the problem of a principal who wishes to contract with a privately informed agent and is not able to commit to not renegotiating any outcome of any mechanism. We provide a general characterization of renegotiation-proof outcomes. We apply the solution to a setting with a continuous type space, private values and non-linear contracts. We find that the optimal renegotiation-proof outcomes for the principal are pooling outcomes and satisfy a “no-distortion-at-the-bottom” property.

Suggested Citation

  • Gretschko, Vitali & Wambach, Achim, 2017. "Contract Design With Limited Commitment," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168269, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc17:168269
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    References listed on IDEAS

    as
    1. Maestri, Lucas, 2017. "Dynamic contracting under adverse selection and renegotiation," Journal of Economic Theory, Elsevier, vol. 171(C), pages 136-173.
    2. Hannu Vartiainen, 2013. "Auction Design Without Commitment," Journal of the European Economic Association, European Economic Association, vol. 11(2), pages 316-342, April.
    3. Geir B. Asheim & Tore Nilssen, 1997. "Insurance monopoly and renegotiation (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 9(2), pages 341-354.
    4. Martin Pollrich, 2017. "Mediated audits," RAND Journal of Economics, RAND Corporation, vol. 48(1), pages 44-68, March.
    5. Bruno Strulovici, 2017. "Contract Negotiation and the Coase Conjecture: A Strategic Foundation for Renegotiation‐Proof Contracts," Econometrica, Econometric Society, vol. 85, pages 585-616, March.
    6. Beaudry, Paul & Poitevin, Michel, 1993. "Signalling and Renegotiation in Contractual Relationships," Econometrica, Econometric Society, vol. 61(4), pages 745-782, July.
    Full references (including those not matched with items on IDEAS)

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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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