Renegotiation-Proof Contracts in Repeated Agency

Renegotiation-proof contracts are studied in infinitely repeated principalagent contracting. Contracts satisfying a weaker notion of renegotiationproofness always exist. With risk neutrality, efficient full-commitment contracts are renegotiation-proof if the agent’s expected lifetime utility is above a critical level; otherwise or if the agent is risk averse then efficient fullcommitment contracts may not be renegotiation-proof. The renegotiationproof value function has a simple characterization: it is the optimal value function with an appropriate lower bound placed on the agent’s expected lifetime utility. Sufficient conditions are provided for renegotiation-proof value functions in finite horizon setting to converge to a renegotiation-proof value function in infinite horizon setting, as time goes to infinity.