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Jihong Lee
 
''Incomplete Information, Renegotiation, and Breach of Contract''
( 2005, Vol. 3 No.5 )
 
 
Once a contract has been agreed by two agents, the problem of renegotiating breach under two-sided asymmetric information on the agents' outside options is equivalent to the problem of bilateral trade with uncertain gains. Thus, the theorem of Myerson and Satterthwaite (1983) implies the impossibility of efficient renegotiation. We also show that, assuming no renegotiation, the optimal breach mechanism in this setting corresponds to the expectation damage rule.
 
 
Keywords: Contract Breach
JEL: C7 - Game Theory and Bargaining Theory:General
K4 - Legal Procedure, the Legal System, and Illegal Behavior: General
 
Manuscript Received : Nov 01 2004 Manuscript Accepted : Jan 22 2005

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