Skip to main content
Article thumbnail
Location of Repository

"Option Contracts and Renegotiation in Complex Environments"

By Thomas P. Lyon and Eric Rasmusen


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.

OAI identifier:

Suggested articles

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