Contracting on time

Sergei Guriev, Dmitriy Kvasov

Research output: Contribution to journalReview article

33 Citations (Scopus)

Abstract

The paper shows how time considerations, especially those concerning contract duration, affect incomplete contract theory. Time is not only a dimension along which the relationship unfolds, but also a continuous verifiable variable that can be included in contracts. We consider a bilateral trade setting where contracting, investment, trade, and renegotiation take place in continuous time. We show that efficient investment can be induced either through a sequence of constantly renegotiated fixed-term contracts; or through a renegotiation-proof "evergreen" contract - a perpetual contract that allows unilateral termination with advance notice. We provide a detailed analysis of properties of optimal contracts.

Original languageEnglish
Pages (from-to)1369-1385
Number of pages17
JournalAmerican Economic Review
Volume95
Issue number5
DOIs
Publication statusPublished - 2005 Dec 1

ASJC Scopus subject areas

  • Economics and Econometrics

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