Renegotiation-Proof Dynamic Contracts with Private Information

Cheng Wang

Review of Economic Dynamics, 2000, vol. 3, issue 3, 396-422

Abstract: This paper studies the issue of renegotiation in a model of dynamic moral hazard. I introduce the notion of a renegotiation-proof dynamic contract. I show that the constraint of renegotiation-proofness can have the effect of setting a higher lower bound to the set of attainable expected utilities of the agent. This result extends the notion of "credit rationing" from the static models of optimal contracting to a dynamic setting, and is useful for thinking about competition for long-term contracts. This result also has implications for the long-run behavior of the expected utility of the agent under dynamic contracting. (Copyright: Elsevier)

Keywords: dynamic contracting; renegociations (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (26)

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DOI: 10.1006/redy.2000.0099

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