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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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References

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  1. Patrick Bajari & Steven Tadelis, 1999. "Incentives versus Transaction Costs: A Theory of Procurement Contracts," Working Papers, Stanford University, Department of Economics 99029, Stanford University, Department of Economics.
  2. Schmitz, Patrick W., 2002. "On the Interplay of Hidden Action and Hidden Information in Simple Bilateral Trading Problems," Journal of Economic Theory, Elsevier, Elsevier, vol. 103(2), pages 444-460, April.
  3. Donald B. Hausch & Yeon-Koo Che, 1999. "Cooperative Investments and the Value of Contracting," American Economic Review, American Economic Association, American Economic Association, vol. 89(1), pages 125-147, March.
  4. Eric Maskin & John Moore, 1999. "Implementation and Renegotiation," Harvard Institute of Economic Research Working Papers 1863, Harvard - Institute of Economic Research.
  5. Georg Noeldeke & Klaus Schmidt, 1998. "Sequential Investments and Options to Own," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 633-653, Winter.
  6. Schmitz, Patrick W., 2002. "Simple contracts, renegotiation under asymmetric information, and the hold-up problem," European Economic Review, Elsevier, Elsevier, vol. 46(1), pages 169-188, January.
  7. Oliver Hart & John Moore, 1998. "Foundations of Incomplete Contracts," Harvard Institute of Economic Research Working Papers 1846, Harvard - Institute of Economic Research.
  8. Jean Tirole, 1999. "Incomplete Contracts: Where Do We Stand?," Econometrica, Econometric Society, Econometric Society, vol. 67(4), pages 741-782, July.
  9. Rubinstein, Ariel & Wolinsky, Asher, 1992. "Renegotiation-Proof Implementation and Time Preferences," American Economic Review, American Economic Association, American Economic Association, vol. 82(3), pages 600-614, June.
  10. Ma, Ching-To Albert, 1994. "Renegotiation and Optimality in Agency Contracts," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 61(1), pages 109-29, January.
  11. 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.
  12. De Fraja, Gianni, 1999. "After You Sir. Hold-Up, Direct Externalities, and Sequential Investment," Games and Economic Behavior, Elsevier, Elsevier, vol. 26(1), pages 22-39, January.
  13. 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.
  14. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475, 9.
  15. 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.
  16. Schmitz, Patrick W., 2005. "Information Gathering, Transaction Costs and the Property Rights Approach," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5417, C.E.P.R. Discussion Papers.
  17. Oliver Hart & John Moore, 2007. "Incomplete Contracts and Ownership: Some New thoughts," American Economic Review, American Economic Association, American Economic Association, vol. 97(2), pages 182-186, May.
  18. Schmitz, Patrick W., 2002. "On simple contracts, renegotiation under asymmetric information, and the hold-up problem," MPRA Paper 12530, University Library of Munich, Germany.
  19. Rogerson, William P, 1992. "Contractual Solutions to the Hold-Up Problem," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 59(4), pages 777-93, October.
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Citations

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Cited by:
  1. Schmitz, Patrick W., 2012. "Public goods and the hold-up problem under asymmetric information," Economics Letters, Elsevier, Elsevier, vol. 117(3), pages 642-645.
  2. Schmitz, Patrick W., 2010. "Contractual solutions to hold-up problems with quality uncertainty and unobservable investments," Journal of Mathematical Economics, Elsevier, vol. 46(5), pages 807-816, September.
  3. Schmitz, Patrick W., 2012. "The hold-up problem, innovations, and limited liability," Economics Letters, Elsevier, Elsevier, vol. 117(3), pages 841-843.
  4. Benjamin E. Hermalin & Michael L. Katz, 2009. "Information and the hold-up problem," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 405-423.
  5. 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.
  6. 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.

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