Contract design with limited commitment


Gretschko, Vitali ; Wambach, Achim


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URL: https://madoc.bib.uni-mannheim.de/49180
URN: urn:nbn:de:bsz:180-madoc-491804
Document Type: Working paper
Year of publication: 2018
The title of a journal, publication series: ZEW Discussion Papers
Volume: 18-054
Place of publication: Mannheim
Publication language: English
Institution: School of Law and Economics > VWL, Marktdesign (Gretschko 2017-)
Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: C72 , C73 , C78 , D82,
Keywords (English): Principal-Agent models , renegotiation , commitment , Coase-conjecture
Abstract: We consider the problem of a principal who wishes to contract with a privately informed agent and is not able to commit to not renegotiating any mechanism. That is, we allow the principal, after observing the outcome of a mechanism to renegotiate the resulting contract without cost by proposing a new mechanism any number of times. We provide a general characterization of renegotiation-proof states of such a renegotiation. The proposed solution concept provides an effective and easy-to-use tool to analyze contracting problems with limited commitment. We apply the solution concept to a setting with a continuous type space, private values and non-linear contracts. We find that the optimal contracts for the principal are pooling and satisfy a “no-distortionat-the-bottom” property.

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Gretschko, Vitali ; Wambach, Achim (2018) Contract design with limited commitment. Open Access ZEW Discussion Papers Mannheim 18-054 [Working paper]
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