Contracting on Time

Sergei Guriev and Dmitriy Kvasov

No w0059, Working Papers from Center for Economic and Financial Research (CEFIR)

Abstract: The paper shows how the time considerations, especially those concerning contract duration, affect incomplete contract theory. Time is not only a dimension along which the relationship unfolds but also a continuous verifiable variable that can be included in contracts. We consider a bilateral trade setting where contracting, investment, trade, and renegotiation take place in continuous time. We show that efficient investment can be induced either through a sequence of constantly renegotiated fixed-term contracts; or through a renegotiation-proof ‘evergreen’ contract–a perpetual contract that allows unilateral termination with advance notice. We provide a detailed analysis of properties of optimal contracts.

JEL-codes: D23 K12 L14 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2005-02
New Economics Papers: this item is included in nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

Published in American Economic Review, December 2005

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Related works:
Journal Article: Contracting on Time (2005)
Working Paper: Contracting on Time (2005)
Working Paper: Contracting on Time (2005)
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