Advanced Search
MyIDEAS: Login to save this paper or follow this series

Market-induced Asset Specificity: Redefining the Hold-up Problem

Contents:

Author Info

  • Lewin-Solomons, S.
Registered author(s):

    Abstract

    In a standard hold-up problem, individuals are vulnerable to hold-up because it is impossible to write complete contracts to cover the lifespan of relationship-specific investments. Hold-up occurs only when investments are to some degree nongeneric, and the extent of the problem increases with the time-span over which an investment must pay off, since long-term contracts are more difficult to write than short-term contracts. This result appears inconsistent with the real life experience of contract suppliers in two respects. First, suppliers often consider themselves "vulnerable" to hold-up even when investments are generic. Second, such a sense of vulnerability is often greatest precisely when assets are short-lived rather than long-lived. This paper provides a model that solves this apparent paradox by looking beyond the isolated problem of bilateral monopoly to the market context in which contracting takes place. We then find that the very meaning of asset specificity comes into question.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.econ.cam.ac.uk/research/repec/cam/pdf/wp0304.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0304.

    as in new window
    Length: 30
    Date of creation: Jan 2003
    Date of revision:
    Handle: RePEc:cam:camdae:0304

    Note: IO
    Contact details of provider:
    Web page: http://www.econ.cam.ac.uk/index.htm

    Related research

    Keywords: asset specificity; hold-up; market structure; contracts;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Lindbeck, A. & Snower, D.J., 1990. "Interactions between the Efficiency Wage and Insider- Outsider Theories," Papers 474, Stockholm - International Economic Studies.
    2. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-58, December.
    3. Ramey Garey & Watson Joel, 2001. "Bilateral Trade and Opportunism in a Matching Market," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 1(1), pages 1-35, November.
    4. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
    5. George J. Stigler, 1951. "The Division of Labor is Limited by the Extent of the Market," Journal of Political Economy, University of Chicago Press, vol. 59, pages 185.
    6. Vetter, Henrik & Andersen, Torben M, 1994. "Do Turnover Costs Protect Insiders?," Economic Journal, Royal Economic Society, vol. 104(422), pages 124-30, January.
    7. MacLeod, W Bentley & Malcomson, James M, 1993. "Investments, Holdup, and the Form of Market Contracts," American Economic Review, American Economic Association, vol. 83(4), pages 811-37, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:cam:camdae:0304. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Howard Cobb).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.