Relational Contracts, Repeated Interaction and Contract Modification |
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Authors: | Morten Hviid |
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Institution: | (1) Department of Economics, University of Warwick, Coventry, CV4 7AL, England |
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Abstract: | The paper uses the theory of repeated games to model relational contracts. It demonstrates that there are cases where it is better to leave a long term contract more incomplete than it needs to be in order to secure optimal renegotiation at every point. In this particular class of contract problems, it may be optimal to allow contract modification even in cases where the buyer could have put the modified terms into the original contract. |
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Keywords: | Contract modification Repeated games Relational contracts Incomplete contracts |
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