2005/08/19 by Patrick W. Schmitz · 1 citation
Economics, Econometrics and Finance · Decision Sciences · Engineering · #Law, Economics, and Judicial Systems #Auction Theory and Applications #Merger and Competition Analysis #Impossibility #Principal (computer security) #Order (exchange) #Benchmark (surveying) #Law and economics #Mechanism design #Business #Work (physics) #Field (mathematics) #Contract theory #Economics #Microeconomics #Computer science #Computer security #Law #Political science #Finance #Engineering
paper · doi:10.1093/jleo/ewi019
openalex publication_date 2005/08/19 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/22
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 article 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.