I study a repeated principal-agent game with long‐term output contracts that can be renegotiated at will. Actions are observable but not contractible, so they can only be incentivized through implicit agreements formed in equilibrium. I show that contract renegotiation is a powerful tool for...

Long-term relationships are often governed by a combination of contracts and implicit agreements. I show that there are welfare gains to writing long-term contracts with the intention of rewriting their terms at a later stage, despite lack of change in the underlying environment. This form of...