Econometrica: Jan 2007, Volume 75, Issue 1
Contract, Mechanism Design, and Technological Detail
Joel WatsonThis paper develops a theoretical framework for studying contract and enforcement in settings with nondurable trading opportunities and complete but unverifiable information. The framework explicitly accounts for the parties' individual trade actions. The sets of implementable state‐contingent payoffs, under various assumptions about renegotiation opportunities, are characterized and compared. The results indicate the benefit of modeling trade actions as individual, rather than as public, and they highlight the usefulness of a structured game‐theoretic framework for applied research.
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