Hold-up and Sequential Specific Investments
AbstractWe explore the hold-up problem when parties can make investments simultaneously or sequentially. Sequencing of investments can allow some projects to proceed that would not be feasible with a simultaneous regime. However, a cost of sequencing is that it can disadvantage some parties, reducing their incentive to invest. The mere possibility of sequential investment can prevent trade from occurring; this can be interpreted as a new form of hold-up. If both parties prefer to invest second, as the number of potential investment periods is increased, the subgame-perfect equilibrium can switch between a prisoners' dilemma and a coordination game.
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Bibliographic InfoArticle provided by The RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 35 (2004)
Issue (Month): 2 (Summer)
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Other versions of this item:
- D92 - Microeconomics - - Intertemporal Choice - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
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