An Equilibrium Analysis of Search and Breach of Contract, I: Steady States
Volume: Volume 10, No. 1
Issue: Spring 1979
Pages: pp. 282-316
Authors: Peter A. Diamond and Eric Maskin
Title: An Equilibrium Analysis of Search and Breach of Contract, I: Steady States
Abstract: We study the steady-state equilibrium of models where individuals meet pairwise in a costly stochastic search process and negotiate contracts to product output. Different meetings yield different outputs, and so an individual in a contract may wish to continue search to find a better match. If he is successful, he will break his original contract. In anticipation of possible breaches, contracts may provide for compensation to be paid to the breached-against partner. We examine the effects that several alternative damage rules have on equilibrium search and breach behavior.
JEL Classification
General Equilibrium and Disequilibrium Theory (0210)
Economics of Uncertainty and Information Game Theory and Bargaining Theory: General (0260)