We develop and estimate a model of dynamic interactions in which commitment is limited and contracts are incomplete to explain the patterns of income and consumption growth in village economies of less developed countries. Households can insure each other through both formal contracts and...

It has been emphasized that when contracts are incomplete (e.g., because some relevant variables are not verifiable by outsiders), the possibility of contract negotiation may prevent achieving desirable allocations that could be implemented otherwise. The authors analyze a situation where...

Spot contracting generally involves efficiency losses relative to long-term contracting. It is proved here that short-term contracting and renegotiation allow to achieve long-run efficiency when transfers are not limited, objectives are conflicting, and no relevant asymmetric information appears...

The authors show in this paper that renegotiable short-term contracts can be as efficient as long-term renegotiation-proof contracts even in situations of asymmetric information. They do so by extending their earlier results on symmetric information models. Some limited commitment thus seems to...