skip to content

Faculty of Economics

Journal Cover

Evans, R. A.

Mechanism design with renegotiation and costly messages

Econometrica

Vol. 80(5) pp. 2089-2104 (2012)

Abstract: According to standard theory, the set of implementable efficient outcome functions is greatly reduced if the mechanism or contract can be renegotiated ex post. In some cases, contracts can achieve nothing and so, for example, the hold-up problem may be severe. This paper shows that if the mechanism is designed in such a way that sending a message involves a small cost, then renegotiation essentially does not restrict the set of efficient implementable functions. Given a weak preference-reversal condition, any Pareto-efficient, bounded social choice function can be implemented in subgame-perfect equilibrium in a renegotiation-proof manner, for any strictly positive message cost. The key point is that messages themselves can act as punishments.

Author links: Robert Evans  

Publisher's Link: http://onlinelibrary.wiley.com/doi/10.3982/ECTA8772/abstract



Cambridge Working Paper in Economics Version of Paper: Mechanism Design and Non-Cooperative Renegotiation, Evans, R. A. and Reiche, S. K., (2013)

Papers and Publications



Recent Publications


Huffman, D., Raymond, C. and Shvets, J. Persistent Overconfidence and Biased Memory: Evidence from Managers American Economic Review [2022]

Elliott, M., Golub, B. and Leduc, M. V. Supply Network Formation and Fragility American Economic Review [2022]

Ritz, R. Does Competition Increase Pass-Through? Rand Journal of Economics, forthcoming [2023]

Ajzenman, N., Cavalcanti, T. and Da Mata, D More than Words: Leaders' Speech and Risky Behavior During a Pandemic American Economic Journal: Economic Policy [2023]