![Investment and liquidation in renegotiation-proof contracts with moral hazard [An article from: Journal of Monetary Economics]](http://ecx.images-amazon.com/images/I/51K8KTFCWEL.jpg)
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This digital document is a journal article from Journal of Monetary Economics, published by Elsevier in 2004. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.
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In a long-term contract with moral hazard, the liquidation of the firm can arise as the outcome of the optimal contract. However, if the future production capability or market opportunities remain unchanged, liquidation may not be free from renegotiation. Will the firm ever be liquidated if we allow for renegotiation? This paper shows that the firm can still be liquidated even though liquidation is not free from renegotiation in the long-term contract. In addition to liquidation, the renegotiation-proof contract generates important features of the investment behavior and dynamics of firms observed in the data.
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