Renegotiation-Proof Relational Contracts with Side Payments

Sebastian Kranz () and Susanne Ohlendorf ()
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Susanne Ohlendorf: Department of Economics, University of Bonn, Adenauerallee 24-42, 53113 Bonn

No 259, Discussion Papers from SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: We study infinitely repeated two player games with perfect information, where each period consists of two stages: one in which the parties simultaneously choose an action and one in which they can transfer money to each other. We first derive simple conditions that allow a constructive characterization of all Pareto-optimal subgame perfect payoffs for all discount factors. Afterwards, we examine different concepts of renegotiation-proofness and extend the characterization to renegotiation-proof payoffs.

Keywords: renegotiation; infinitely repeated games; side payments; optimal penal codes (search for similar items in EconPapers)
JEL-codes: C73 L14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth
Date: 2009-04
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