Chapter

Dynamically Inconsistent Preferences II: Constrained Contracting

Spiegler Ran

in Bounded Rationality and Industrial Organization

Published in print February 2011 | ISBN: 9780195398717
Published online September 2011 | e-ISBN: 9780199896790 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780195398717.003.0003
Dynamically Inconsistent Preferences II: Constrained Contracting

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This chapter extends the analysis of Chapter 2 to situations in which firms face restrictions on the set of contracts they can offer to consumers. It is shown that when firms are restricted to two-part tariffs, they exhibit departures from marginal-cost pricing. The role of renegotiation and spot market competition in destabilizing commitment devices is highlighted. The chapter extends the multi-selves model to situations in which consumers are able to exert partial self-control.

Keywords: dynamically inconsistent preferences; self-control; multi-selves model; two-part tariffs; marginal-cost pricing; renegotiation; spot markets; temptation

Chapter.  6655 words.  Illustrated.

Subjects: Economics

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