EconPapers    
Economics at your fingertips  
 

Strategic Effects of Renegotiation-Proof Contracts

Emanuele Gerratana () and Levent Koçkesen ()

The B.E. Journal of Theoretical Economics, 2012, vol. 12, issue 1, 1-49

Abstract: It is well known that non-renegotiable contracts with third parties may have an effect on the outcome of a strategic interaction and thus serve as a commitment device. We address this issue when contracts are renegotiable. More precisely, we analyze the equilibrium outcomes of two-stage games with renegotiation-proof third-party contracts in relation to the equilibrium outcomes of the same game without contracts. We assume that one of the parties in the contractual relationship is unable to observe everything that happens in the game when played by the other party. We first show that when contracts are non-renegotiable, the set of equilibrium outcomes of the game with contracts is restricted to a subset of Nash equilibrium outcomes of the original game. Introducing renegotiation, in general, imposes further constraints and in some games implies that only subgame perfect equilibrium outcomes of the original game can be supported. However, there is a large class of games in which non-subgame perfect equilibrium outcomes can also be supported, and hence, third-party contracts still have strategic implications even when they are renegotiable.

Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6) Track citations by RSS feed

Downloads: (external link)
https://www.degruyter.com/view/j/bejte.2012.12.iss ... .1919.xml?format=INT (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
Working Paper: Strategic Effects of Incomplete and Renegotiation-Proof Contracts (2009) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:bejtec:v:12:y:2012:i:1:n:23

Ordering information: This journal article can be ordered from
https://www.degruyter.com/view/j/bejte

Access Statistics for this article

The B.E. Journal of Theoretical Economics is currently edited by Burkhard C. Schipper

More articles in The B.E. Journal of Theoretical Economics from De Gruyter
Bibliographic data for series maintained by Peter Golla ().

 
Page updated 2021-04-03
Handle: RePEc:bpj:bejtec:v:12:y:2012:i:1:n:23