Template-Type: ReDIF-Paper 1.0
Title: Should Contractual Clauses that Forbid
	Renegotiation Always be Enforced?
Author-Name: Patrick W. Schmitz
Author-Email: 
Classification-JEL: K12
Keywords: Contract modification; Renegotiation; Moral hazard
Abstract: Recent work in the field of mechanism design has led some researchers to propose
	institutional changes that would permit parties to enter into nonmodifiable contracts,
	which is not possible under current contract law. This paper demonstrates that it
	may well be socially desirable not to enforce contractual terms that explicitly prevent
	renegotiation, even if rational and symmetrically informed parties have deliberately
	signed such a contract. The impossibility to prevent renegotiation can constrain the
	principal’s abilities to introduce distortions in order to reduce the agent’s rent, so that
	the first-best benchmark solution will more often be attained.
Note: 
Length: 28
Creation-Date: 2005-09
Revision-Date: 
File-URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse26_2005.pdf
File-Format: application/pdf
Handle: RePEc:bon:bonedp:bgse26_2005