Publications
Publications
- Annales d'économie et de statistique
Non-verifiability, Costly Renegotiation, and Efficiency
By: Jerry R. Green and J. J. Laffont
Abstract
We study the implications of the non verifiability of information for the allocation of resources and the bearing of risk in a two party relationship. We consider a two step approach. In step one the two parties define a non contingent contract which will be executed when the non verifiable information will become common knowledge of the two parties. In step two a costly exogenous bargaining process takes place. The main result is that with risk neutrality it is possible to induce the first best as a Nash equilibrium of the contract without having to renegotiate. A counter example shows that the result does not extend to risk averse parties for which non verifiability of information will impede in general risk sharing.
Keywords
Citation
Green, Jerry R., and J. J. Laffont. "Non-verifiability, Costly Renegotiation, and Efficiency." Annales d'économie et de statistique, no. 36 (October–December 1994): 81–95.