The paper characterizes optimal renegotiation-proof rental contracts in a model with adverse selection and hidden information. It generalizes the work of Hart and Tirole (1988) to the case of time-varying valuations. The paper considers a durable-goods monopolist who serves a nonanonymous buyer with time-varying valuation for the seller's good. The buyer's valuation has a persistent and a transient component; both are private information. The paper shows that for some range of prior beliefs the seller strictly prefers leasing to selling.
ASJC Scopus subject areas
- Business, Management and Accounting(all)
- Economics and Econometrics
- Strategy and Management
- Management of Technology and Innovation