Contract Negotiation and the Coase Conjecture: A Strategic Foundation for Renegotiation-Proof Contracts

Strulovici, Bruno

doi:10.3982/ecta13637

Cited by 26 publications

(11 citation statements)

References 36 publications

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“…Making low offers is incentive compatible when the buyer is unsure about the seller's cost, but not when the buyer is unsure about the seller's discount rate. 3 Our work also contributes to the literature on the efficiency of bargaining under incomplete information pioneered by Stokey (1981) and Gul, Sonnenschein, and Wilson (1986) and has been revisited recently by Strulovici (2017) and Liu, Mierendorff, Shi, and Zhong (2019). The driving forces behind the inefficient equilibria in our model differ from those identified in existing works, such as the gains from trade can be arbitrarily close to zero (Ausubel and Deneckere, 1989), players face higher order uncertainty (Feinberg and Skrzypacz, 2005), players' values are interdependent (Deneckere and Liang, 2006), new players arrive over time (Fuchs and Skrzypacz, 2010), the seller has stochastic time-varying costs (Ortner, 2017), and players face uncertainty about the future costs of delay (Fanning, 2018).…”

Section: Introductionmentioning

confidence: 82%

Reputational Bargaining with Unknown Values

Pei¹,

Vairo²

2022

Preprint

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A buyer and a seller bargain over the price of an object. The buyer's value is common knowledge and the seller has private information about his production cost. In the beginning of the game, each player proposes a price and becomes committed to it with small probability. We characterize the set of equilibria. We show that equilibria with inefficient delays exist if and only if the difference in cost between some pair of adjacent types is large enough and the probability of low-cost type seller is sufficiently high. When there are multiple equilibria, the buyer prefers the least efficient equilibrium and all types of the seller prefer the most efficient equilibrium. In an extension where the seller can decide whether to adopt a cost-saving technology before bargaining, we pin down the equilibrium adoption rate and provide conditions under which bargaining inefficiencies arise in all equilibria.

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Section: Introductionmentioning

confidence: 82%

Reputational Bargaining with Unknown Values

Pei¹,

Vairo²

2022

Preprint

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“…4 Similar dynamic contracting under adverse selection arises in the seller-buyer relationships (Hart andTirole, 1988, Skreta, 2006) or in labor contracts (Kanemoto and MacLeod, 1992). In the former literature, Strulovici (2017) shows that, with an infinite horizon as assumed here, all equilibria converge to a fully separation of types. In contrast, in our paper, some pooling of types remains over time and no more revelation of types occurs after the second period.…”

Section: Introductionmentioning

confidence: 83%

The informational value of environmental taxes

Ambec

Coria

2021

Journal of Public Economics

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We propose informational spillovers as a new rationale for the use of multiple policy instruments to mitigate a single externality. We investigate the design of a pollution standard when the firms' abatement costs are unknown and emissions are taxed. A firm might abate pollution beyond what is required by the standard by equalizing its marginal abatement costs to the tax rate, thereby revealing information about its abatement cost. We analyze how a regulator can take advantage of this information to design the standard. In a dynamic setting, the regulator relaxes the initial standard in order to induce more information revelation, which would allow her to set a standard closer to the first best in the future. Updating standards, though, generates a ratchet effect since a lowcost firm might strategically hide its cost by abating no more than required by the standard. We characterize the optimal standard and its update across time depending on the firm's abatement strategy. We illustrate our theoretical results with the case of NO x regulation in Sweden. We find evidence that the firms that pay the NO x tax experience more frequent standard updates and more stringent revisions than those who are exempted.

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“…Renegotiation-proofness concepts have been developed in the context of infinitely and finitely repeated games with complete information in e.g., Farrell and Maskin (1989), Van Damme (1989), Bernheim and Ray (1989), Evans and Maskin (1989), and in e.g., Benoit and Krishna (1993) and Wen (1996), respectively. There is a sizable literature on the renegotiation-proofness of contracts in the presence of asymmetric information possibly starting with Hart and Tirole (1988) and Dewatripont (1989) and recent contributions in Maestri (2017) and Strulovici (2017).…”

Section: Discussionmentioning

confidence: 99%

Renegotiation and Coordination with Private Values

Heller

Kuzmics

2019

SSRN Journal

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We define and characterize the set of renegotiation-proof equilibria of coordination games with pre-play communication in which players have private preferences over the feasible coordinated outcomes. Renegotiation-proof equilibria provide a narrow selection from the large set of qualitatively diverse Bayesian Nash equilibria in such games. They are such that players never miscoordinate, play their jointly preferred outcome whenever there is one, and communicate only the ordinal part of their preferences. Moreover, they are robust to changes in players' beliefs, interim Pareto efficient, and evolutionarily stable.Pre-play communication After learning their type, but before playing this coordination game, the two players each simultaneously send a publicly observable message from a finite set of messagesis the set of all probability distributions over messages in M. We assume that messages are costless. We call the game, so amended, the coordination game with communication and denote it by Γ, M .Strategies A player's (ex-ante) strategy in the coordination game with communication is then a pair σ = (µ, ξ ), where µ : U → ∆(M) is a (Lebesgue measurable) message function that describes which (possibly random) message is sent for each possible realization of the agent's type, and ξ :M × M → U is an action function that describes the maximal type (cutoff type) that chooses L as a function of the observed message profile; that is, when an agent who follows strategy (µ, ξ ) observes a message profile (m, m ′ ) (message m sent by the agent, and message m ′ sent by the opponent), then the agent plays L if her type u is at most ξ (m, m ′ ) (i.e., if u ≤ ξ (m, m ′ )), and she plays R if u > ξ (m, m ′ ). (The choice that the threshold type plays L does not affect our analysis, given the assumption of F being atomless.)Let Σ be the set of all strategies in the game Γ, M .Remark 2. In principle, we should allow more general action functions ξ : U × M × M → △{L, R}, which specify the probability that an agent chooses L as a function of the observed message profile and the agent's type. It is simple to see, however, and proven in Lemma 1 in Appendix A.1, that any "generalized" strategy is dominated by a strategy that uses a cutoff action function in the second stage. The intuition, is that following the observation of any pair of messages, lower types always gain more (less) than higher types from choosing L (R). We thus simplify our notation by considering only cutoff action functions of the form ξ : M × M → U .Let µ u (m) denote the probability, given message function µ, that a player sends message m if she is of type u. Letμ (m) = IE u [µ u (m)] be the mean probability that a player of a random type sends message m (where the expectation is taken with respect to F). Let supp (μ) = {m ∈ M |μ (m) > 0} denote the support ofμ. With a slight abuse of notation we write ξ (m, m ′ ) = L when all types (who send message m with positive probability) play L (i.e., when ξ (m, m ′ ) ≥ sup (u ∈ U |µ u (m) > 0)), and we write ξ (m, m ′ ) = R...

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Contract Negotiation and the Coase Conjecture: A Strategic Foundation for Renegotiation-Proof Contracts

Cited by 26 publications

References 36 publications

Reputational Bargaining with Unknown Values

Reputational Bargaining with Unknown Values

The informational value of environmental taxes

Renegotiation and Coordination with Private Values

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