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The B.E. Journal of Macroeconomics

Editor-in-Chief: Cavalcanti, Tiago / Kambourov, Gueorgui

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Contracts and Money Revisited

Antoine Martin
  • 1Federal Reserve Bank of New York,
/ Cyril Monnet
  • 2European Central Bank,
Published Online: 2006-01-10 | DOI: https://doi.org/10.2202/1534-5998.1296

Jovanovic and Ueda (1997) consider a principal-agent model with moral hazard and renegotiation. A noisy signal of the agent's output is observed before renegotiation takes place and actual output is revealed after renegotiation. If the agent is restricted to choose pure strategies it can be shown that the only renegotiation-proof contracts which induce optimal effort by the agent depend only on the signal and not on actual output. In this paper we show the restriction to pure strategies is crucial to the result, at least when the quality of the signal is not very good.

Keywords: Moral Hazard; Renegotiation; Theory of Uncertainty and Information

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Published Online: 2006-01-10

Citation Information: Topics in Macroeconomics, ISSN (Online) 1534-5998, DOI: https://doi.org/10.2202/1534-5998.1296. Export Citation

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