This paper, authored by Oliver Hart and John Moore, explores the implications of incomplete contracts and renegotiation in economic transactions. The authors argue that in practice, contracts are often incomplete due to the high cost of specifying all possible actions and outcomes, leading to a reliance on messages and renegotiation to adjust the contract as new information becomes available. They analyze the optimal form of such contracts, considering two scenarios: when messages cannot be verified and when they can. In the first scenario, the authors show that the parties can only specify two prices, and the rest of the contract is determined by the realized values of the variables involved. In the second scenario, where messages can be verified, the contract can force specific messages to be sent, and the final prices depend on the realized values of these messages. The paper also discusses the implications of these findings for the optimal second-best contract, particularly in cases where the parties are risk-neutral and take actions to increase surplus. The authors conclude that in many cases, a simple two-price contract can achieve the same outcomes as more complex, verifiable message schemes.This paper, authored by Oliver Hart and John Moore, explores the implications of incomplete contracts and renegotiation in economic transactions. The authors argue that in practice, contracts are often incomplete due to the high cost of specifying all possible actions and outcomes, leading to a reliance on messages and renegotiation to adjust the contract as new information becomes available. They analyze the optimal form of such contracts, considering two scenarios: when messages cannot be verified and when they can. In the first scenario, the authors show that the parties can only specify two prices, and the rest of the contract is determined by the realized values of the variables involved. In the second scenario, where messages can be verified, the contract can force specific messages to be sent, and the final prices depend on the realized values of these messages. The paper also discusses the implications of these findings for the optimal second-best contract, particularly in cases where the parties are risk-neutral and take actions to increase surplus. The authors conclude that in many cases, a simple two-price contract can achieve the same outcomes as more complex, verifiable message schemes.