On Watson's Non-Forcing Contracts and Renegotiation

Serrano, Roberto

doi:10.2139/ssrn.724202

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On Watson's Non-Forcing Contracts and Renegotiation

Brown University Economics Working Paper No. 2004-03

9 Pages Posted: 18 May 2005

See all articles by Roberto Serrano

Roberto Serrano

Brown University

Date Written: May 2004

Abstract

Watson (2002) proposes non-forcing contracts as a way to show the limitations of the mechanism design program with ex-post renegotiation (Maskin and Moore (1999)). If one takes a partial implementation approach, as Watson does, we show that non-forcing contracts do not constitute an intermediate paradigm between implementation with no renegotiation and with ex-post renegotiation. Moreover, taking a full implementation approach, non-forcing contracts fail if and only if one goes outside of the constraints identified by Maskin and Moore, because of the appearance of undesirable equilibria.

Keywords: contracts, renegotiation, mechanism design

JEL Classification: C70, D74, K10

Suggested Citation: Suggested Citation

Serrano, Roberto, On Watson's Non-Forcing Contracts and Renegotiation (May 2004). Brown University Economics Working Paper No. 2004-03, Available at SSRN: https://ssrn.com/abstract=724202 or http://dx.doi.org/10.2139/ssrn.724202