Economics, Econometrics and Finance
4 years ago

Inefficient contracts exposed: Principal's profit strategy thwarted by informed agents.

Econometric Society World Congress 2000 Contributed Papers
Renegotiation Before Contract Execution
Achim Wambach

Paper Summary

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The article discusses how revealing information before signing a contract can lead to renegotiation. If a contract preferred by everyone exists after information is revealed, the initial contract was not renegotiation-proof. For certain types of values, offering inefficient contracts to agents does not increase the principal's profit. Inefficient contracts are only possible for specific types of values.