Durable Goods and Moral Hazard: An Option to Implement the First Best

@inproceedings{Achter2000DurableGA,
  title={Durable Goods and Moral Hazard: An Option to Implement the First Best},
  author={Bj{\"A}orn C. Achter},
  year={2000}
}
  • BjÄorn C. Achter
  • Published 2000
A monopolist selling a durable good cannot extract the whole amount of monopoly rents from consumers each period. This inef̄ciency is due to the incompleteness of contracts: The monopolist cannot credibly commit not to lower the price in future periods. By using leasing contracts however the monopolist can solve this credibility problem, but then he is exposed to ine±ciencies due to moral hazard. This leads many authors in the Durable Goods Literature to rule out leasing contracts. This paper's… CONTINUE READING

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