Wambach, Achim: Renegotiation Before Contract Execution
World Conference Econometric Society, 2000, Seattle

Achim Wambach, University of Munich
Renegotiation Before Contract Execution
Session: C-13-4  Wednesday 16 August 2000  by Wambach, Achim
By offering or choosing a contract the informed agent might reveal information to the principal which could be used for immediate renegotiation. This is discussed in an axiomatic approach.
We show that if, given the revealed information, there exists a contract which is preferred by everyone, the former contract could not have been renegotiation proof. For private values and common values of the 'Spence' type, a generalised Coase Conjecture holds: The principal cannot raise her profit by offering inefficient contracts to the agent. Only for common values of the 'Rothschild-Stiglitz' type, inefficient, but pooling, contracts are possible.
Submitted paper full-text in .pdf


File created by Jurgen Doornik with eswc2000.ox on 2-01-2001