Efficient sales contracts ensure fair renegotiation and optimal project outcomes.
Contracts designed with renegotiation in mind are often simple. In a model where renegotiation can happen after effort is chosen, the principal protects against bad renegotiation by selling the project to the agent through a sales contract. If only single contracts are possible, the initial contract must be a sales contract if the agent has the power, effort is hidden, and the agent is talented. Renegotiation leads to efficient outcomes. Even with multiple contracts available, if choosing from a menu has a cost, a single contract is chosen and renegotiation happens. If specifying a menu is complex, the initial contract is also a single sales contract, especially if the agent is talented.