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Renegotiation-Proof Relational Contracts with Side Payments

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  • Kranz, Sebastian
  • Ohlendorf, Susanne

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.

Suggested Citation

  • Kranz, Sebastian & Ohlendorf, Susanne, 2009. "Renegotiation-Proof Relational Contracts with Side Payments," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 259, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    • Handle: RePEc:trf:wpaper:259
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    File URL: https://epub.ub.uni-muenchen.de/13293/1/259.pdf
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    References listed on IDEAS

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    Cited by:

    1. Sebastian Kranz, 2013. "Relational Contracting, Repeated Negotiations, and Hold-Up," Levine's Working Paper Archive 786969000000000676, David K. Levine.
    2. Goldlücke, Susanne & Kranz, Sebastian, 2012. "Infinitely repeated games with public monitoring and monetary transfers," Journal of Economic Theory, Elsevier, vol. 147(3), pages 1191-1221.
    3. Susanne Goldlücke & Sebastian Kranz, 2018. "Discounted stochastic games with voluntary transfers," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 66(1), pages 235-263, July.
    4. James M. Malcomson, 2012. "Relational Incentive Contracts [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    5. Andersson Ola & Wengström Erik, 2010. "Costly Renegotiation in Repeated Bertrand Games," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-12, December.

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    More about this item

    Keywords

    renegotiation; infinitely repeated games; side payments; optimal penal codes;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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