A BEJM Topics article.

Abstract

Jovanovic and Ueda (1997) consider a principal-agent model with moral hazard and renegotiation. A noisy signal of the agent's output is observed before renegotiation takes place and actual output is revealed after renegotiation. If the agent is restricted to choose pure strategies it can be shown that the only renegotiation-proof contracts which induce optimal effort by the agent depend only on the signal and not on actual output. In this paper we show the restriction to pure strategies is crucial to the result, at least when the quality of the signal is not very good.

Submitted: February 3, 2005 · Accepted: December 18, 2005 · Published: January 10, 2006

Originally published in Topics in Macroeconomics.

Recommended Citation

Martin, Antoine and Monnet, Cyril (2006) "Contracts and Money Revisited," Topics in Macroeconomics: Vol. 6 : Iss. 1, Article 1.
Available at: http://www.bepress.com/bejm/topics/vol6/iss1/art1