Resource title

Should Contractual Clauses that Forbid Renegotiation Always be Enforced?

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Resource description

Recent work in the field of mechanism design has led some researchers to propose institutional changes that would permit parties to enter into nonmodifiable contracts, which is not possible under current contract law. This paper demonstrates that it may well be socially desirable not to enforce contractual terms that explicitly prevent renegotiation, even if rational and symmetrically informed parties have deliberately signed such a contract. The impossibility to prevent renegotiation can constrain the principal?s abilities to introduce distortions in order to reduce the agent?s rent, so that the first-best benchmark solution will more often be attained.

Resource author

Patrick W. Schmitz

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/22932

Resource license

Adapt according to the presented license agreement and reference the original author.