The Review of Economic Studies · 1990 · 327 citations · 1 references
BusinessBusiness EconomicsContract TheoryContractsPublic ProcurementAdverse SelectionContract DesignInformation AsymmetryOptimal ContractingProcurementProcurement ContractsAdverse Selection In ProcurementAsymmetric Information ExchangeBargaining With Asymmetric InformationContract Design Under Asymmetric InformationLong-term ContractingLong-term Procurement ContractsOptimal Contracting TheoryProcurement Contract Renegotiation
As was shown by Dewatripont, optimal long-term contracts under asymmetric information are generally not time-consistent. This paper fully characterizes the equilibrium of a two-period procurement model with commitment and renegotiation. It also analyzes whether renegotiated long-term contracts yield outcomes resembling those under either unrenegotiated long-term contracts or a sequence of short-term contracts, and links the analysis with the multiple unit durable good monopoly problem.
1