Procurement and renegotiation
TLDR
In this article, the issue of the parties' investment in the relationship before renegotiation is analyzed in a simple two-period procurement model, and it is shown that if investment is observable by the sponsor andthus may become a joint decision variable, the two parties may choose to under or over invest.Abstract:
Parties bound by an incomplete contract have an incentive to renegotiate after acquiring new information. The issue of the parties' investment in the relationship before renegotiation is analyzed in a simple two-period procurement model. The firm invests in the first period. It then learns its production cost, and the sponsor learns its value for the project. Williamson's underinvestment presumption is shown to hold under very general assumptions about bargaining and about the ex post asymmetry of information as long as the firm's investment is not observable by the sponsor. The introduction of a cancellation fee may well lead to even less investment contrary to what is sometimes argued. The role of ex ante price fixing as an alternative way to reintroduce some form of commitment and the problem of cost overruns are discussed. Last, it is shown that if investment is observable by the sponsor andthus may become a joint decision variable, the two parties may choose to under- or overinvest.read more
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References
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Journal ArticleDOI
Vertical Integration, Appropriable Rents, and the Competitive Contracting Process
TL;DR: In this paper, the potential of post-contractural apportunistic behavior for improving market efficiency through intra-firm rather than interfirm transactions is examined under the assumption that vertical costs will increase less than contracting costs as specialized assets and appropriable quasi rents increase.
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Perfect equilibrium in a bargaining model
TL;DR: In this paper, a study which examined perfect equilibrium in a bargaining model was presented, focusing on a strategic approach adopted for the study and details of the bargaining situation used; discussion on perfect equilibrium.
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Strategic Information Transmission
Vincent P. Crawford,Joel Sobel +1 more
TL;DR: In this article, the authors developed a model of strategic communication in which a better-informed Sender (S) sends a possibly noisy signal to a Receiver (R), who then takes an action that determines the welfare of both.
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Efficient Mechanisms for Bilateral Trading
TL;DR: In this article, the seller's valuation and the buyer's valuation for a single object are assumed to be independent random variables, and each individual's valuation is unknown to the other.
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