Incomplete contracts in dynamic games

Arbeitspapier

I develop a dynamic model of costly private provision of public goods where agents can also invest in cost-reducing technologies. Despite the n+1 stocks in the model, the analysis is tractable and the (Markov perfect) equilibrium unique. The framework is used to derive optimal incomplete contracts in a dynamic setting. If the agents can contract on provision levels, but not on investments, they invest suboptimally little, particularly if the contract is short-term or close to its expiration date. To encourage sufficient investments, the optimal and equilibrium contract is more ambitious if it is short-lasting, and it is tougher to satisfy close to its expiration date. If renegotiation is possible, such a contract implements the first best. The results have important implications for how to design a climate treaty.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Paper ; No. 1504

Classification and Topics

• Classification: Wirtschaft ; Economics of Contract: Theory ; International Fiscal Issues; International Public Goods ; Climate; Natural Disasters and Their Management; Global Warming ; International Agreements and Observance; International Organizations
• Subject: dynamic private provision of public goods ; dynamic common-pool problems ; dynamic hold-up problems ; incomplete contracts ; renegotiation design ; climate change and climate agreements

Contributors, Location and Time

• Event: Geistige Schöpfung
• (who): Harstad, Bård
• Event: Veröffentlichung
• (who): Northwestern University, Kellogg School of Management, Center for Mathematical Studies in Economics and Management Science
• (where): Evanston, IL
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/59673
• Last update: 10.03.2025, 11:43 AM CET