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Contract and Mechanism Design in Settings with Multi-Period Trade

Abstract

This paper presents analysis of contractual settings with complete but unverifiable information and where trade consists of a sequence of verifiable productive actions, between which renegotiation can occur. The main result identifies an equivalent, simplified model that can be used to calculate the set of implementable value functions. The result also shows that the detrimental effects of renegotiation between productive actions can be counteracted when the parties can sufficiently communicate with the external enforcer over time. Corollary results address the form of optimal contracts and the effect of irreversible productive actions.

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