Contract Renegotiation with Time‐Varying Valuations

Andreas Blume

Journal of Economics & Management Strategy, 1998, vol. 7, issue 3, 397-433

Abstract: The paper characterizes optimal renegotiation‐proof rental contracts in a model with adverse selection and hidden information. It generalizes the work of Hart and Tirole (1988) to the case of time‐varying valuations. The paper considers a durable‐goods monopolist who serves a nonanonymous buyer with time‐varying valuation for the seller's good. The buyer's valuation has a persistent and a transient component; both are private information. The paper shows that for some range of prior beliefs the seller strictly prefers leasing to selling.

Date: 1998
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https://doi.org/10.1111/j.1430-9134.1998.00397.x

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Persistent link: https://EconPapers.repec.org/RePEc:bla:jemstr:v:7:y:1998:i:3:p:397-433

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