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How does renegotiation affect contracts between a principal and an agent subject to persistent private information and moral hazard? This paper introduces a concept of renegotiation-proofness, which adapts to stochastic games the concepts of weak renegotiation-proofness and internal consistency...
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collateral good more highly than does the lender; otherwise the optimal contract does not resemble debt. Limited collateral can …
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paid. The second good thus serves as collateral, and is essential in nontrivial contracts in order to satisfy incentive … absolute risk aversion of the borrower is nonincreasing. The amount of the collateral good available to the borrower can …
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