Cheap Talk about Specific Investments

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Cheap Talk about Specific Investments

Author Info

Farrell, Joseph
Gibbons, Robert

Additional information is available for the following registered author(s):

Joseph Farrell

Abstract

We consider a problem in which a buyer has private information about the efficient scale or nature of a relationship-specific investment by a producer. We show that reducing the producer's ex post bargaining power may enhance efficiency by providing incentives for the buyer to reveal his private information before the investment is made. This consideration can outweigh the well-known "hold-up" problem that arises if the producer does not have all the bargaining power. Copyright 1995 by Oxford University Press.

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Publisher Info
Article provided by Oxford University Press in its journal Journal of Law, Economics and Organization.

Volume (Year): 11 (1995)
Issue (Month): 2 (October)
Pages: 313-34
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Handle: RePEc:oup:jleorg:v:11:y:1995:i:2:p:313-34

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Schmitz, Patrick W., 2002. "On the Interplay of Hidden Action and Hidden Information in Simple Bilateral Trading Problems," MPRA Paper 12531, University Library of Munich, Germany. [Downloadable!]
Other versions:
- 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. [Downloadable!] (restricted)
Kirsten Foss & Nicolai J. Foss, 1999. "Understanding Ownership Residual Rights of Control and Appropriable Control Rights," DRUID Working Papers 99-4, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies. [Downloadable!]
Frisell, Lars & Lagerlöf, Johan N.M., 2005. "Eliciting Demand Information through Cheap Talk: An Argument in Favour of Price Regulations," CEPR Discussion Papers 5343, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Other versions:
- Lars Frisell & Johan N.M. Lagerlof, 2005. "Eliciting Demand Information through Cheap Talk: An Argument in Favor of Price Regulations," Industrial Organization 0510011, EconWPA. [Downloadable!]
- Lars Frisell & Johann Lagerloef, 2005. "Eliciting Demand Information through Cheap Talk: An Argument in Favor of Price Regulations," Royal Holloway, University of London: Discussion Papers in Economics 05/10, Department of Economics, Royal Holloway University of London, revised Aug 2005. [Downloadable!]
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. [Downloadable!]
Other versions:
- Schmitz, Patrick W, 2001. "The Hold-up Problem and Incomplete Contracts: A Survey of Recent Topics in Contract Theory," Bulletin of Economic Research, Blackwell Publishing, vol. 53(1), pages 1-17, January.
Patrick W. Schmitz, 2006. "Information Gathering, Transaction Costs, and the Property Rights Approach," American Economic Review, American Economic Association, vol. 96(1), pages 422-434, March. [Downloadable!]
Other versions:
- Schmitz, Patrick W., 2005. "Information Gathering, Transaction Costs and the Property Rights Approach," CEPR Discussion Papers 5417, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Schmitz, Patrick W., 2002. "On simple contracts, renegotiation under asymmetric information, and the hold-up problem," MPRA Paper 12530, University Library of Munich, Germany. [Downloadable!]

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