Article thumbnail

Option Contracts and Renegotiation in Complex Environments

By Thomas P. Lyon and Rasmusen Eric


Hart & Moore (1999) construct a model to show that contracts perform poorly in complex environments when the state of the world is unverifiable and renegotiation cannot be ruled out. They implicitly assume one player can extort payment from another by threatening to take an inefficient action which hurts both of them. We show that without this assumption a simple "buyer option" contract can implement the first-best even as complexity becomes severe

Topics: JEL Codes: L14, K12, 330
Publisher: University of Tokyo
Year: 2001
DOI identifier: 10.2139/ssrn.261689
OAI identifier:
Provided by: UT Repository
Download PDF:
Sorry, we are unable to provide the full text but you may find it at the following location(s):
  • (external link)
  • Suggested articles

    To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.