Self-Revealing Renegotiation

Andrea Attar, Lorenzo Bozzoli and Roland Strausz
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Andrea Attar: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CNRS - Centre National de la Recherche Scientifique
Lorenzo Bozzoli: Unknown
Roland Strausz: Unknown

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Abstract: We revisit the tension between the legal doctrine of renegotiation and economic efficiency. We introduce self-revealing mechanisms that combine bidirectional communication (the agent sends and receives information) with conditional disclosure (communication remains private during renegotiation but becomes verifiable at contract execution). In the canonical Fudenberg and Tirole (1990) framework, we design a self-revealing mechanism that fully mitigates the renegotiation threat by uniquely implementing the second-best allocation. Thus, the construction achieves the full-commitment outcome while satisfying renegotiation-proofness. Our optimal mechanism is structurally simple, and exploits signal disclosures to the agent to construct incentive-compatible off-path punishments, which she activates after observing a renegotiation offer. It verifies standard commitment assumptions by only conditioning decisions on public information, without requiring any third-party enforcement. In practical terms, it can be implemented with existing smart-contract techniques. Our results extend to general settings of renegotiation.

Date: 2026-02-12
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