Unforeseen Contingency and Renegotiation with Asymmetric Information

Jihong Lee

Economic Journal, 2008, vol. 118, issue 528, 678-694

Abstract: This article considers a buyer-seller contracting model in which the seller possesses private information about all relevant aspects of the state of nature, including how much each action is worth to the buyer. I argue that, given asymmetric information, the buyer may not entirely dismiss an unforeseen contingency claim by the seller. Then, if the buyer lacks the foresight/awareness to 'expect the unexpected', the model admits an equilibrium in which a seemingly complete contract is written and then renegotiated along its outcome path to generate inefficiency "ex post". Copyright © 2008 The Author(s).

Date: 2008
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Working Paper: Unforeseen Contingency and Renegotiation with Asymmetric Information (2007)
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