Contract and Mechanism Design in Settings with Multi-Period Trade

Joel Watson

University of California at San Diego, Economics Working Paper Series from Department of Economics, UC San Diego

Abstract: This paper presents analysis of contractual settings with complete but unverifiable information and where trade consists of a sequence of verifiable productive actions, between which renegotiation can occur. The main result identifies an equivalent, simplified model that can be used to calculate the set of implementable value functions. The result also shows that the detrimental effects of renegotiation between productive actions can be counteracted when the parties can sufficiently communicate with the external enforcer over time. Corollary results address the form of optimal contracts and the effect of irreversible productive actions.

Keywords: contract; hold up; renegotiation; mechanism design; ongoing relationship; reversibility; unverifiable information (search for similar items in EconPapers)
Date: 2006-02-01
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Citations: View citations in EconPapers (1)

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