Working paper

Mediated Renegotiation

Andrea Attar, Lorenzo Bozzoli, and Roland Strausz

Abstract

We propose a novel approach to contract renegotiation with asymmetric information, introducing mediated mechanisms that generate additional private information to deter renegotiation. These mechanisms prevent any renegotiation, upholding secondbest optimality as the unique equilibrium outcome. Thus, the inefficiencies typically associated with the threat of renegotiation are completely offset by the design of mediated mechanisms. We formally illustrate this result in the canonical framework of Fudenberg and Tirole (1990). We explicitly show that these mediated mechanisms can be decentralized by smart contracts, running on a public blockchain, which guarantees that our results do not require any trustworthy third party.

JEL codes

  • D43: Oligopoly and Other Forms of Market Imperfection
  • D82: Asymmetric and Private Information • Mechanism Design
  • D86: Economics of Contract: Theory

Reference

Andrea Attar, Lorenzo Bozzoli, and Roland Strausz, Mediated Renegotiation, TSE Working Paper, n. 24-1522, March 2024, revised February 2025.

See also

Published in

TSE Working Paper, n. 24-1522, March 2024, revised February 2025