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  • Annales d'économie et de statistique

Non-verifiability, Costly Renegotiation, and Efficiency

By: Jerry R. Green and J. J. Laffont
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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

Negotiation

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.
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About The Author

Jerry R. Green

Negotiation, Organizations & Markets
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More from the Authors
  • Two Representations of Information Structures and Their Comparisons By: Jerry R. Green and Nancy L. Stokey
  • Assent-maximizing Social Choice By: Katherine A. Baldiga and Jerry R. Green
  • Let the Right One In: A Microeconomic Approach to Partner Choice in Mutualisms By: Marco Archetti, Francisco Ubeda, Drew Fudenberg, Jerry R. Green, Naomi E. Pierce and Douglas W. Yu
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