Option contracts and renegotiation: A solution to the Hold-Up Problem
AbstractIn this article, we analyze the canonical hold-up model of Hart and Moore under the assumption that the courts can verify delivery of the good by the seller. It is shown that no further renegotiation design is necessary to achieve the first best: simple option contracts, which give the seller the right to make the delivery decision and specify payments depending on whether delivery takes place, allow implementation of efficient investment decisions and efficient trade.
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Bibliographic InfoPaper provided by University of Munich, Department of Economics in its series Munich Reprints in Economics with number 19329.
Date of creation: 1995
Date of revision:
Publication status: Published in The Rand journal of economics 2 26(1995): pp. 163-179
Other versions of this item:
- Georg Noldeke & Klaus M. Schmidt, 1995. "Option Contracts and Renegotiation: A Solution to the Hold-Up Problem," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 163-179, Summer.
- Georg Nöldeke & Klaus M. Schmidt, 1992. "Option Contracts and Renegotiation - A Solution to the Hold-Up Problem," Discussion Paper Serie A 417, University of Bonn, Germany, revised Aug 1993.
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