Investment and liquidation in renegotiation-proof contracts with moral hazard
نویسنده
چکیده
In a long-term contract with moral hazard, the liquidation of the firm can arise as the outcome of the optimal contract. However, if the future production capability or market opportunities remain unchanged, liquidation may not be free from renegotiation. Will the firm ever be liquidated if we allow for renegotiation? This paper shows that the firm can still be liquidated even though liquidation is not free from renegotiation in the long-term contract. In addition to liquidation, the renegotiation-proof contract generates important features of the investment behavior and dynamics of firms observed in the data.
منابع مشابه
Contracts , Information Persistence , and Renegotiation ∗
This paper studies how renegotiation and information persistence shape long-term contracts in principal-agent relationships. Truthful contracts that are renegotiation-proof, according to a concept tailored to account for persistence in the agent’s type, are characterized by their sensitivity to the reports of the agent. The sensitivity of the optimal renegotiation-proof contract is increasing i...
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