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.

Date: 2008
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https://doi.org/10.1111/j.1468-0297.2008.02137.x

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Persistent link: https://EconPapers.repec.org/RePEc:wly:econjl:v:118:y:2008:i:528:p:678-694

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