Renegotiation-Proof Relational Contracts with Side Payments

Kranz, Sebastian and Ohlendorf, Susanne (April 2009): Renegotiation-Proof Relational Contracts with Side Payments. SFB/TR 15 Discussion Paper No. 259

Abstract

We study infinitely repeated two player games with perfect information, where each period consists of two stages: one in which the parties simultaneously choose an action and one in which they can transfer money to each other. We first derive simple conditions that allow a constructive characterization of all Pareto-optimal subgame perfect payoffs for all discount factors. Afterwards, we examine different concepts of renegotiation-proofness and extend the characterization to renegotiation-proof payoffs.

• Item Type: Paper
• Keywords: renegotiation, infinitely repeated games, side payments, optimal penal codes
• Faculties: Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems; Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > A5 - Unvollständige Vertragsbeziehungen und die Gestaltung von Residualrechten
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: C73, L14
• Language: English