We present a Theory of Contracts under costly enforcement in the context of a dynamic relationship between an uninformed buyer and a seller who is privately informed on his persistent cost at the outset. Public enforcement relies on remedies for breach. Private enforcement comes from severing...

This paper considers trading environments in which buyers are privately informed about their valuations and sellers are privately informed about the expected value of outside trading opportunities. Outside opportunities are stochastic, however, and future realized shocks may make bilateral trade...