Renegotiating Incomplete Contracts

Ed Nosal

RAND Journal of Economics, 1992, vol. 23, issue 1, 20-28

Abstract: I examine the welfare effects associated with having agents write incomplete contracts. When contracting parties are permitted to renegotiate existing contracts, I show that they will be able to design contracts that can implement the set of first-best allocations via renegotiation. Therefore, at least for the kind of economy that is examined here, incomplete contracts do not impair the optimality of production and exchange.

Date: 1992
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