An ex-post efficient contract is an agreement in which the parties always trade the efficient quantity. An ex-ante efficient contract is an agreement in which parties always make the efficient investments. Renegotiation ensures that contracts are always ex-ante efficient.

Parties don’t need to renegotiate complete contracts as they have anticipated all relevant circumstances and provided for them.

Parties routinely renegotiate a contract if it turns out that performing the contract as written would be inefficient.

Holdup arises if the non-investing party does not capture part of the surplus created by the investing party.