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The authors charact erize the optimal revision mechanism both when the contract is used t o encourage relationship-specific investments and when it is used for risk sharing.



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When drawing up a contract, it is often impracticable to specify all the possible relevant contingencies, and so contracts are typically incomplete. We show that if the buyer expects renegotiation to occur, the seller can opportunistically exploit the buyer's attachment to the expected outcome of renegotiation.

renegotiation (Hart, (1995)). By continuing you agree to the Copyright © 2020 Elsevier B.V. or its licensors or contributors.

25 Pages Posted: 30 Aug 2004.

The parties to a contract typically make a lot of decisions during the time it is in force, and the paper …
(PDF) Strategic Effects of Incomplete and Renegotiation-Proof Contracts | Emanuele Gerratana and Levent Kockesen - Academia.edu Abstract It is well known that non-renegotiable contracts with third parties may have an effect on the outcome of a strategic interaction and thus serve as a commitment device. For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: When drawing up a contract, it is often impracticable for the parties to specify all the relevant contingencies. Subscribe to this fee journal for more curated articles on this topic Subscribe to this free journal for more curated articles on this topic

Incomplete Contracts and Renegotiation . By thus arguing that the threat of renegotiation allows contractual incompleteness, the paper reverses the direction of causality stressed by the literature. One conclusion is that because the par-ties can res cind the original contract and ne-gotiate a new one, severe limitatio ns are placed on the form the revisions can take.

We find that decisions are more likely to be left out of contracts if only one player attaches significant weight to them and simultaneously is well informed.

We identify a set of conditions under which the possibility of renegotiation allows the parties to leave all non-price decisions out of the contract.

By John Hardman Moore and Oliver Hart.

The cost of the arrangement is that the information and preferences of the uninvolved party are neglected. In particular, they may be unable to describe the states of the world in enough detail that an outsider (the courts) could later verify which state had occurred, and so the contract will be incomplete.

The paper considers a hold-up model where only one of n future trading opportunities will prove to be efficient, and where ex post renegotiation of the ex ante contract cannot be prevented.

57 (1999).



Furthermore, we have benefited from comments made by conference participants at the SFB Meeting at Bonn, the Jahrestagung of the VfS at Hamburg, the ICGT at Stony Brook, the RES Meeting at Manchester, the NCBEE at Aarhus, and from seminar audiences at LMU Munich, University of Zurich, University of Cologne, and Aarhus University.Heiko Karle gratefully acknowledges financial support from the We use cookies to help provide and enhance our service and tailor content and ads. If you are a registered author of this item, you may also want to check the "citations" tab in your





the various RePEc services.Various rankings of research in Economics & related fieldsCurated articles & papers on various economics topicsRePEc working paper series dedicated to the job marketPretend you are at the helm of an economics departmentHave your institution's/publisher's output listed on RePEc When drawing up a contract, it is often impracticable to specify all the relevant contingencies, and so contracts are typically incomplete. 4506-04.

One striking conclusion of the analysis is that because the parties can rescind the original contract and negotiate a new one, …



When drawing up a contract, it is often impracticable to specify all the possible relevant contingencies, and so contracts are typically incomplete.



Copyright 1988 by The Econometric Society.http://links.jstor.org/sici?sici=0012-9682%28198807%2956%3A4%3C755%3AICAR%3E2.0.CO%3B2-I&origin=repec

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While the direct effect of this may be small, it is dramatically amplified if the decision-maker can be disciplined by the threat of renegotiation.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. We find that loss aversion can mitigate the traditional hold-up problem.We thank an Associate Editor, three anonymous reviewers, Andrea Canidio, Maija Halonen-Akatwijuka, Takeshi Murooka, Antonio Rosato, Klaus M. Schmidt, and Patrick Schmitz for helpful comments and suggestions. Attempts to economize on decision-making time then imply that the parties may write a contract in which each cedes some decision rights to the other. If you have authored this item and are not yet registered with RePEc, we encourage you to do it We have no references for this item.



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