Steven Matthews Northwestern University SBR-9511953 The proposal consists of three related projects centered on the revision of contracts and the intentional sequencing of agreements and actions. The first project examines the hypothesis that when contracts cannot be enforced, then the parties may need to take actions piecemeal over time. One application of this idea concerns the classic case of voluntary contributions to a public good. If contributors have to give at the same time, then the only equilibrium results in no contributions being given as everyone tries to "free-ride." But if individuals can spread out their contributions over time, in general an equilibrium will exist in which full contributions are made in finite time. The research will explore the robustness of this result to the underlying assumptions made. The second project looks at multi-issue bargaining when not all actions are contractible. Again the goal is to understand why contractual agreements are often reached in piecemeal fashion, when current models predict that everything should be negotiated at the beginning with no delay. The third project concerns the evolution of contractual agreements. A model is presented that suggests that in a principal-agent model in which contracts are contrained by limited liability, the equiibrium initial contract takes the form of simple debt which is later renegotiated.
