Commitment Value of Contracts Under Renegotiation Constraints

Bensaïd, Bernard; Gary-Bobo, Robert

doi:10.2307/2951649

Cited by 162 publications

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“…We will further show that there exists a contract that makes it the unique optimal strategy after a 1 . Assume without loss of generality thatb 2 Gordan's Theorem (Mangasarian (1994) 2 ) − δ − ε >Ũ 2 , for small enough ε. In other words, player 2 has a profitable deviation, contradicting thatŨ 2 is an equilibrium payoff.…”

Section: Lemma 2 a Strategy B *mentioning

confidence: 99%

“…This game form is different from the one chosen by Dewatripont and it simplifies the characterization of renegotiation-proof contracts. 2 We analyze the renegotiation-proof Perfect Bayesian equilibrium of the game with contracts, and this leads us to the following definition of renegotiation-proof contracts (see Definition 5): A contract is renegotiation-proof if it is optimal for the third party to reject any renegotiation offer that is found profitable by the contracting party. This can happen in equilibrium if the third party puts a high probability on a "blocking type" of 1 See, among many others, Vickers (1985), Fershtman and Judd (1987), Sklivas (1987), Koçkesen et al (2000), Brander and Lewis (1986), Bolton and Scharfstein (1990), Snyder (1996), Spencer and Brander (1983), Brander and Spencer (1985), Eaton and Grossman (1986), Walsh (1995).…”

Section: Introductionmentioning

confidence: 99%

“…This can happen in equilibrium if the third party puts a high probability on a "blocking type" of 1 See, among many others, Vickers (1985), Fershtman and Judd (1987), Sklivas (1987), Koçkesen et al (2000), Brander and Lewis (1986), Bolton and Scharfstein (1990), Snyder (1996), Spencer and Brander (1983), Brander and Spencer (1985), Eaton and Grossman (1986), Walsh (1995). 2 See Section 5 (Proposition 9) for a comparison of the two renegotiation protocols.…”

Section: Introductionmentioning

confidence: 99%

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Commitment without reputation: renegotiation-proof contracts under asymmetric information

Gerratana

Koçkesen

2015

Rev Econ Design

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This paper characterizes equilibrium outcomes of extensive form games with incomplete information in which players sign renegotiable contracts with third parties. Our aim is to understand the extent to which third-party contracts can be used as commitment devices when it is impossible to commit not to renegotiate them. We characterize renegotiation-proof contracts and strategies for extensive form games with incomplete information and apply our results to twostage games. If contracts are observable, then the second mover obtains the best possible payoff given that she plays an incentive compatible and renegotiation-proof strategy and the first mover best responds. If contracts are unobservable, then any Bayesian Nash equilibrium outcome of the original game in which the second mover plays an incentive compatible and renegotiationproof strategy can be supported. We apply our results to Stackelberg competition and show that renegotiation-proofness imposes a very simple restriction.JEL Classification: C72, D80, L13.

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Section: Lemma 2 a Strategy B *mentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Commitment without reputation: renegotiation-proof contracts under asymmetric information

Gerratana

Koçkesen

2015

Rev Econ Design

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“…When u 2 has increasing differences, incentive compatibility of (g , b 2 ) is equivalent to the local upward and downward constraints: 18 One may find this definition too weak as it allows the beliefs to be arbitrary following an off-the-equilibrium renegotiation offer. A more reasonable alternative could be to require the beliefs to satisfy intuitive criterion.…”

Section: ) Is Not Renegotiation-proof If and Only If There Exist I Anmentioning

confidence: 99%

“…Since player 2 is already best responding after R, a Pareto im-proving renegotiation can happen only after L and it must lead to b 2 (L) = r . Incentive compatibility implies that b 2 is increasing, and therefore, b 2 …”

Section: Ultimatum Bargainingmentioning

confidence: 99%

Strategic Effects of Incomplete and Renegotiation-Proof Contracts

Gerratana

Koçkesen

2009

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. stage games with renegotiation-proof third-party contracts in relation to the equilibrium outcomes of the same game without contracts. We assume that one of the parties in the contractual relationship is unable to observe everything that happens in the game when played by the other party. This implies that contracts are incomplete and we show that such incompleteness restricts the set of equilibrium outcomes to a subset of Nash equilibrium outcomes of the game without contracts. Introducing renegotiation, in general, imposes further constraints and in some games implies that only subgame perfect equilibrium outcomes can be supported. However, there is a large class of games in which non-subgame perfect equilibrium outcomes can also be supported, and hence, third-party contracts still have strategic implications even when they are renegotiable. Terms of use: Documents inJEL Classification: C72, C78, D86, L13.

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Delegation games and side-contracting

Polo

Tedeschi

2000

Research in Economics

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Commitment Value of Contracts Under Renegotiation Constraints

Cited by 162 publications

References 0 publications

Commitment without reputation: renegotiation-proof contracts under asymmetric information

Commitment without reputation: renegotiation-proof contracts under asymmetric information

Strategic Effects of Incomplete and Renegotiation-Proof Contracts

Delegation games and side-contracting

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