Contract, Renegotiation, and Holdup: When Should Messages be Sent?

Daniel Göller ()

VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy from Verein für Socialpolitik / German Economic Association

Abstract: I consider a setting of complete but unverifiable information in which two agents enter a contractual relationship to induce mutually beneficial investments. As my main result, I establish that the famous irrelevance of contracting paradigm, that arises due to the detrimental effect of renegotiation, is resolved if there is a fixed point in time when actions have to be chosen and one accounts for the fact that renegotiation takes time. What drives my optimality result is that, by stipulating when the mechanism is to be played, the agents ensure that renegotiation is possible ex ante but not ex post.

JEL-codes: D82 D86 K12 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc15:113166

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