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

Does Evolution Solve the Hold-up Problem

Contents:

Author Info

  • Tore Ellingsen

    (Stockholm School of Economics)

  • Jack Robles

    (University of Colorado)

Abstract

We examine the theoretical foundations of the hold-up problem. At a first stage, one agent decides on the level of a relationship specific invesment. There is no contract, so at a second stage the agent must bargain with a trading partner over the surplus generated by the investment. We show that the conventional underinvestment result hinges crucially both on the assumed bargaining game and on hte choice of equilibrium concept. In particular, we prove the following two results. (i) If bargaining proceeds according to the Nash demand game, any investment level is subgame perfect, but only efficient oucomes are evolutionarily stable. (ii) If bargaining proceeds according to the ultimatum game (with the trading partner as proposer,) only the minimal investment level is subgame perfect, but any investment level is evolutionarily stable.

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://fmwww.bc.edu/RePEc/es2000/1525.pdf
File Function: main text
Download Restriction: no

Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1525.

as in new window
Length:
Date of creation: 01 Aug 2000
Date of revision:
Handle: RePEc:ecm:wc2000:1525

Contact details of provider:
Phone: 1 212 998 3820
Fax: 1 212 995 4487
Email:
Web page: http://www.econometricsociety.org/pastmeetings.asp
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

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. D. Foster & P. Young, 2010. "Stochastic Evolutionary Game Dynamics," Levine's Working Paper Archive 493, David K. Levine.
  2. Hart, Oliver & Moore, John, 1999. "Foundations of Incomplete Contracts," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 115-38, January.
  3. Van Damme, Eric & Selten, Reinhard & Winter, Eyal, 1990. "Alternating bid bargaining with a smallest money unit," Games and Economic Behavior, Elsevier, vol. 2(2), pages 188-201, June.
  4. Drew Fudenberg & David K. Levine, 1993. "Self-Confirming Equilibrium," Levine's Working Paper Archive 2147, David K. Levine.
  5. Oliver Hart & Sanford Grossman, 1985. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Working papers 372, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. repec:att:wimass:9517 is not listed on IDEAS
  7. Samuelson Larry, 1994. "Stochastic Stability in Games with Alternative Best Replies," Journal of Economic Theory, Elsevier, vol. 64(1), pages 35-65, October.
  8. Binmore, Ken, et al, 1998. "Hard Bargains and Lost Opportunities," Economic Journal, Royal Economic Society, vol. 108(450), pages 1279-98, September.
  9. Hackett, Steven C, 1994. "Is Relational Exchange Possible in the Absence of Reputations and Repeated Contact?," Journal of Law, Economics and Organization, Oxford University Press, vol. 10(2), pages 360-89, October.
  10. Gale, John & Binmore, Kenneth G. & Samuelson, Larry, 1995. "Learning to be imperfect: The ultimatum game," Games and Economic Behavior, Elsevier, vol. 8(1), pages 56-90.
  11. Fernandez, Raquel & Glazer, Jacob, 1991. "Striking for a Bargain between Two Completely Informed Agents," American Economic Review, American Economic Association, vol. 81(1), pages 240-52, March.
  12. Jean Tirole, 1985. "Procurement and Renegotiation," Working papers 362, Massachusetts Institute of Technology (MIT), Department of Economics.
  13. Binmore, K. & Proulx, C. & Samuelson, L. & Swierzbinski, J., 1996. "Hard Bargains and Lost Opportunities," Working papers 9517r, Wisconsin Madison - Social Systems.
  14. Noldeke Georg & Samuelson Larry, 1993. "An Evolutionary Analysis of Backward and Forward Induction," Games and Economic Behavior, Elsevier, vol. 5(3), pages 425-454, July.
  15. Young, H Peyton, 1998. "Conventional Contracts," Review of Economic Studies, Wiley Blackwell, vol. 65(4), pages 773-92, October.
  16. Tore Ellingsen & Magnus Johannesson, 2004. "Is There a Hold-up Problem?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(3), pages 475-494, October.
  17. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  18. Kandori, M. & Mailath, G.J., 1991. "Learning, Mutation, And Long Run Equilibria In Games," Papers 71, Princeton, Woodrow Wilson School - John M. Olin Program.
  19. Binmore, Ken & Samuelson, Larry, 1999. "Evolutionary Drift and Equilibrium Selection," Review of Economic Studies, Wiley Blackwell, vol. 66(2), pages 363-93, April.
  20. repec:att:wimass:9529 is not listed on IDEAS
  21. Ellingsen, Tore, 1995. "The Evolution of Bargaining Behavior," Working Paper Series in Economics and Finance 61, Stockholm School of Economics.
  22. Saez-Marti, Maria & Weibull, Jörgen W., 1998. "Clever agents in Young's evolutionary bargaining model," Working Paper Series in Economics and Finance 281, Stockholm School of Economics.
  23. Binmore, K. & Piccione, M. & Samuelson, L., 1996. "Evolutionary Stability in Alternating-Offers Bargaining Games," Working papers 9603r, Wisconsin Madison - Social Systems.
  24. Binmore, K. & Samuelson, L., 1997. "Evolutionary Drift and Equilibrium Selection," Working papers 9729r, Wisconsin Madison - Social Systems.
  25. repec:att:wimass:9325 is not listed on IDEAS
  26. Maskin, Eric & Tirole, Jean, 1999. "Unforeseen Contingencies and Incomplete Contracts," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 83-114, January.
  27. Nash, John, 1953. "Two-Person Cooperative Games," Econometrica, Econometric Society, vol. 21(1), pages 128-140, April.
  28. Shelanski, Howard A & Klein, Peter G, 1995. "Empirical Research in Transaction Cost Economics: A Review and Assessment," Journal of Law, Economics and Organization, Oxford University Press, vol. 11(2), pages 335-61, October.
  29. Binmore, Ken & Piccione, Michele & Samuelson, Larry, 1998. "Evolutionary Stability in Alternating-Offers Bargaining Games," Journal of Economic Theory, Elsevier, vol. 80(2), pages 257-291, June.
  30. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
  31. Young H. P., 1993. "An Evolutionary Model of Bargaining," Journal of Economic Theory, Elsevier, vol. 59(1), pages 145-168, February.
  32. 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.
  33. Grout, Paul A, 1984. "Investment and Wages in the Absence of Binding Contracts: A Nash Bargining Approach," Econometrica, Econometric Society, vol. 52(2), pages 449-60, March.
  34. Haller, Hans & Holden, Steinar, 1990. "A letter to the editor on wage bargaining," Journal of Economic Theory, Elsevier, vol. 52(1), pages 232-236, October.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Olcina, Gonzalo & Penarrubia, Concepcion, 2004. "Hold up and intergenerational transmission of preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 54(1), pages 111-132, May.
  2. Tore Ellingsen & Magnus Johannesson, 2004. "Is There a Hold-up Problem?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(3), pages 475-494, October.
  3. Olcina Vauteren Gonzalo & Calabuig Alcántara Vicente, 2007. "Cooperation and Cultural Transmission in a Coordination Game," Working Papers 201066, Fundacion BBVA / BBVA Foundation.
  4. Luciano Andreozzi, 2008. "Property Rights and Investments: An Evolutionary Approach," Department of Economics Working Papers 0822, Department of Economics, University of Trento, Italia.
  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. Siemens, Ferdinand von, 2005. "Bargaining under Incomplete Information, Fairness, and the Hold-Up Problem," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 57, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  7. Troger, Thomas, 2002. "Double Auctions, Ex-Post Participation Constraints, and the Hold-Up Problem," University of California at Santa Barbara, Economics Working Paper Series qt3f2509gz, Department of Economics, UC Santa Barbara.
  8. Herbert Dawid & Joern Dermietzel, 2006. "How Robust is the Equal Split Norm? Responsive Strategies, Selection Mechanisms and the Need for Economic Interpretation of Simulation Parameters," Computational Economics, Society for Computational Economics, vol. 28(4), pages 371-397, November.
  9. Siemens, Ferdinand von, 2005. "Bargaining under Incomplete Information, Fairness, and the Hold-Up Problem," Discussion Papers in Economics 518, University of Munich, Department of Economics.
  10. Birendra K. Rai, 2006. "Evolution of Division Rules," Papers on Strategic Interaction 2006-27, Max Planck Institute of Economics, Strategic Interaction Group.
  11. Troger, Thomas, 2002. "Double Auctions, Ex-Post Participation Constraints, and the Hold-Up Problem," University of California at Santa Barbara, Economics Working Paper Series qt5qv060md, Department of Economics, UC Santa Barbara.
  12. Andreozzi, Luciano, 2010. "An evolutionary theory of social justice: Choosing the right game," European Journal of Political Economy, Elsevier, vol. 26(3), pages 320-329, September.
  13. Bahry, Donna L. & Wilson, Rick K., 2006. "Confusion or fairness in the field? Rejections in the ultimatum game under the strategy method," Journal of Economic Behavior & Organization, Elsevier, vol. 60(1), pages 37-54, May.
  14. Christian Ewerhart, 2006. "The Effect of Sunk Costs on the Outcome of Alternating-Offers Bargaining Between Inequity-Averse Agents," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 58(2), pages 184-203, April.
  15. Dawid, Herbert & MacLeod, W. Bentley, 2008. "Hold-up and the evolution of investment and bargaining norms," Games and Economic Behavior, Elsevier, vol. 62(1), pages 26-52, January.
  16. Sebastian Kranz, 2013. "Relational Contracting, Repeated Negotiations, and Hold-Up," Cowles Foundation Discussion Papers 1888, Cowles Foundation for Research in Economics, Yale University.
  17. Kevin Hasker, 2014. "The Emergent Seed: A Representation Theorem for Models of Stochastic Evolution and two formulas for Waiting Time," Levine's Working Paper Archive 786969000000000954, David K. Levine.
  18. L. Bagnoli & G. Negroni, 2012. "On the coevolution of social norms in primitive societies," Working Papers wp858, Dipartimento Scienze Economiche, Universita' di Bologna.
  19. L. Bagnoli & G. Negroni, 2013. "Egalitarianism. An evolutionary perspective," Working Papers wp888, Dipartimento Scienze Economiche, Universita' di Bologna.

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:ecm:wc2000:1525. 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: (Christopher F. Baum).

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.