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Incomplete contracts, the hold-up problem, and asymmetric information

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  • Schmitz, Patrick W.

Abstract

Given symmetric information, in a standard hold-up problem a buyer's investment incentives are always increasing in his bargaining power. While this result is robust under one-sided private information, it can be overturned under two-sided private information.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 99 (2008)
Issue (Month): 1 (April)
Pages: 119-122

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Handle: RePEc:eee:ecolet:v:99:y:2008:i:1:p:119-122

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Web page: http://www.elsevier.com/locate/ecolet

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References

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  1. Bajari, Patrick & Tadelis, Steven, 2001. "Incentives versus Transaction Costs: A Theory of Procurement Contracts," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 387-407, Autumn.
  2. Schmitz, Patrick W., 2005. "Information Gathering, Transaction Costs and the Property Rights Approach," CEPR Discussion Papers 5417, C.E.P.R. Discussion Papers.
  3. Rubinstein, Ariel & Wolinsky, Asher, 1992. "Renegotiation-Proof Implementation and Time Preferences," American Economic Review, American Economic Association, vol. 82(3), pages 600-614, June.
  4. Rogerson, William P, 1992. "Contractual Solutions to the Hold-Up Problem," Review of Economic Studies, Wiley Blackwell, vol. 59(4), pages 777-93, October.
  5. Schmitz, Patrick W., 2002. "Simple contracts, renegotiation under asymmetric information, and the hold-up problem," European Economic Review, Elsevier, vol. 46(1), pages 169-188, January.
  6. Nöldeke, Georg & Schmidt, Klaus M., 1998. "Sequential investments and options to own," Munich Reprints in Economics 19327, University of Munich, Department of Economics.
  7. Schmitz, Patrick W., 2001. "The Hold-Up Problem and Incomplete Contracts: A Survey of Recent Topics in Contract Theory," MPRA Paper 12562, University Library of Munich, Germany.
  8. Schmitz, Patrick W., 2002. "On simple contracts, renegotiation under asymmetric information, and the hold-up problem," MPRA Paper 12530, University Library of Munich, Germany.
  9. Eric Maskin & John Moore, 1999. "Implementation and Renegotiation," Harvard Institute of Economic Research Working Papers 1863, Harvard - Institute of Economic Research.
  10. Jean Tirole, 1999. "Incomplete Contracts: Where Do We Stand?," Econometrica, Econometric Society, vol. 67(4), pages 741-782, July.
  11. Ching-to Albert Ma, 1990. "Renegotiation and Optimality in Agency Contracts," Papers 0004, Boston University - Industry Studies Programme.
  12. Oliver Hart & John Moore, 1998. "Foundations of Incomplete Contracts," Harvard Institute of Economic Research Working Papers 1846, Harvard - Institute of Economic Research.
  13. Schmitz, Patrick W., 2002. "On the Interplay of Hidden Action and Hidden Information in Simple Bilateral Trading Problems," Journal of Economic Theory, Elsevier, vol. 103(2), pages 444-460, April.
  14. Oliver E. Williamson, 2002. "The Theory of the Firm as Governance Structure: From Choice to Contract," Journal of Economic Perspectives, American Economic Association, vol. 16(3), pages 171-195, Summer.
  15. Oliver Hart & John Moore, 2007. "Incomplete Contracts and Ownership: Some New thoughts," American Economic Review, American Economic Association, vol. 97(2), pages 182-186, May.
  16. Oliver Hart & Andrei Shleifer & Robert W. Vishny, 1996. "The Proper Scope of Government: Theory and an Application to Prisons," NBER Working Papers 5744, National Bureau of Economic Research, Inc.
  17. repec:att:wimass:9714 is not listed on IDEAS
  18. Donald B. Hausch & Yeon-Koo Che, 1999. "Cooperative Investments and the Value of Contracting," American Economic Review, American Economic Association, vol. 89(1), pages 125-147, March.
  19. De Fraja, Gianni, 1999. "After You Sir. Hold-Up, Direct Externalities, and Sequential Investment," Games and Economic Behavior, Elsevier, vol. 26(1), pages 22-39, January.
  20. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475, October.
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Citations

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Cited by:
  1. Schmitz, Patrick W, 2001. "The Hold-up Problem and Incomplete Contracts: A Survey of Recent Topics in Contract Theory," Bulletin of Economic Research, Wiley Blackwell, vol. 53(1), pages 1-17, January.
  2. Schmitz, Patrick W., 2013. "Public goods and the hold-up problem under asymmetric information," MPRA Paper 53717, University Library of Munich, Germany.
  3. Schmitz, Patrick W., 2012. "The hold-up problem, innovations, and limited liability," MPRA Paper 43407, University Library of Munich, Germany.
  4. Hermalin, Benjamin E. & Katz, Michael L, 2009. "Information and the Hold-Up Problem," Department of Economics, Working Paper Series qt782315gb, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  5. Kurtis Swope & Pamela Schmitt & John Cadigan & Ryan Wielgus, 2010. "Contracts, Behavior, and the Land-Assembly Problem:An Experimental Study," Departmental Working Papers 29, United States Naval Academy Department of Economics.
  6. Schmitz, Patrick W., 2009. "Contractual solutions to hold-up problems with quality uncertainty and unobservable investments," CEPR Discussion Papers 7584, C.E.P.R. Discussion Papers.

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