Renegotiation and Optimality in Agency Contracts

S-Tier
Journal: Review of Economic Studies
Year: 1994
Volume: 61
Issue: 1
Pages: 109-129

Score contribution per author:

8.043 = (α=2.01 / 1 authors) × 4.0x S-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

We analyse renegotiation in a hidden action principal-agent model. Contract renegotiation offers are made by the agent. A refinement is imposed on the principal's beliefs: if precisely one action is optimal with respect to both the principal's and the agent's contracts, the principal believes that that action has been taken. With the refinement imposed, perfect-Bayesian equilibrium allocations are identical to the second best in the classical principal-agent model without renegotiation. When renegotiation is led by the agent and when equilibria satisfy the refinement, equilibrium allocations are ex ante efficient.

Technical Details

RePEc Handle
repec:oup:restud:v:61:y:1994:i:1:p:109-129.
Journal Field
General
Author Count
1
Added to Database
2026-01-25