The Renegotiation-Proofness Principle and Costly Renegotiation

Games

James R. Brennan¹ 

[1] id="af1-games-04-00347">Department of Economics, University of California, San Diego, 9500 Gilman Drive, La Jolla, CA 92093-0508, U

关键词: contract theory;    bargaining;    negotiation;    mechanism design;   

DOI  :  10.3390/g4030347

来源: mdpi

【 摘 要 】

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.

【 授权许可】

CC BY   
© 2013 by the authors; licensee MDPI, Basel, Switzerland.