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Kranz, Sebastian and Ohlendorf, Susanne (April 2009): Renegotiation-Proof Relational Contracts with Side Payments. SFB/TR 15 Discussion Paper No. 259 [PDF, 429kB]


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.

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