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Information and bargaining in the hold-up problem

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  • Stephanie Lau
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    Abstract

    This article incorporates an information structure with partial information into the canonical hold-up problem. The optimal information structure balances the tradeoff between ex ante efficiency (the information rent effect) and ex post efficiency (the bargaining disagreement effect). With one-shot bargaining, it occurs at an intermediate level of information asymmetry; when there is repeated bargaining, it is attained with perfect asymmetry. Asymmetric information, the parameter that is frequently ignored in the literature, turns out to be an important welfare instrument for the hold-up problem. Our results therefore provide a basis for institutional design regarding the optimal control of information flow. Copyright (c)2008, RAND.

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    Bibliographic Info

    Article provided by RAND Corporation in its journal The RAND Journal of Economics.

    Volume (Year): 39 (2008)
    Issue (Month): 1 ()
    Pages: 266-282

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    Handle: RePEc:bla:randje:v:39:y:2008:i:1:p:266-282

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    Cited by:
    1. Kurtis Swope & Pamela Schmitt & John Cadigan & Ryan Wielgus, 2010. "Contracts, Behavior, and the Land-Assembly Problem:An Experimental Study," Departmental Working Papers, United States Naval Academy Department of Economics 29, United States Naval Academy Department of Economics.
    2. Goldlücke, Susanne & Schmitz, Patrick W., 2014. "Investments as signals of outside options," Journal of Economic Theory, Elsevier, Elsevier, vol. 150(C), pages 683-708.
    3. Stefano Comino & Antonio Nicolò & Piero Tedeschi, 2005. "Termination Clauses in Partnerships," Industrial Organization, EconWPA 0509007, EconWPA.
    4. Maria Goltsman, 2011. "Optimal information transmission in a holdup problem," RAND Journal of Economics, RAND Corporation, RAND Corporation, vol. 42(3), pages 495-526, 09.
    5. Benjamin E. Hermalin & Michael L. Katz, 2009. "Information and the hold-up problem," RAND Journal of Economics, RAND Corporation, RAND Corporation, vol. 40(3), pages 405-423.
    6. Kawai, Keiichi, 2014. "Dynamic market for lemons with endogenous quality choice by the seller," Games and Economic Behavior, Elsevier, Elsevier, vol. 84(C), pages 152-162.
    7. Lau, Stephanie, 2011. "Investment incentives in bilateral trading," Games and Economic Behavior, Elsevier, Elsevier, vol. 73(2), pages 538-552.

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