We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
The Renegotiation-Proofness Principle and Costly Renegotiation.
- Authors
Brennan, James R.; Watson, Joel
- Abstract
We study contracting and costly renegotiation in settings of complete, but unverifiable information, using the mechanism-design approach. We show how renegotiation activity is best modeled in the fundamentals of the mechanism-design framework, so that noncontractibility of renegotiation amounts to a constraint on the problem. We formalize and clarify the Renegotiation-Proofness Principle (RPP), which states that any state-contingent payoff vector that is implementable in an environment with renegotiation can also be implemented by a mechanism in which renegotiation does not occur in equilibrium. We observe that the RPP is not valid in some settings. However, we prove a general monotonicity result that confirms the RPP's message about renegotiation opportunities having negative consequences. Our monotonicity theorem states that, as the costs of renegotiation increase, the set of implementable state-contingent payoffs becomes larger.
- Subjects
CONTRACT theory; RENEGOTIATION; COLLECTIVE bargaining; GAME theory; CONTRACT negotiations
- Publication
Games (20734336), 2013, Vol 4, Issue 3, p347
- ISSN
2073-4336
- Publication type
Article
- DOI
10.3390/g4030347