Hannu Vartiainen, University of Helsinki

"Recursively Renegotiation-proof Contracts"

Abstract

We modify the concept of renegotiation-proofness by requiring that a contract be robust against redesigns that are themselves robust against redesigns. A contract that is, in this sense, recursively renegotiation-proof is shown to exist under general conditions. We provide a procedure to identify all contracts that meet the property. The framework is applied to bilateral bargaining. We demonstrate that a surplus maximizing second best mechanism can be implemented by a recursively renegotiation-proof contract.

Contact person: Peter Norman Sørensen