Journal Article

Complexity and Renegotiation: A Foundation for Incomplete Contracts

Ilya Segal

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 66, issue 1, pages 57-82
Published in print January 1999 | ISSN: 0034-6527
Published online January 1999 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/1467-937X.00078
Complexity and Renegotiation: A Foundation for Incomplete Contracts

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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. As the environment becomes more complex (n→∞), the outcome under any message-contingent long-term contract converges to that of the “incomplete contracting” model where trade is contractible ex post, but not ex ante. When trades are costly to describe, both ex ante and ex post, the incomplete contracting result is extended to a broader class of environments.

Journal Article.  0 words. 

Subjects: Economics

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