Hold-up, Asset Ownership, and Reference Points
AbstractWe study two parties who desire a smooth trading relationship under conditions of value and cost uncertainty. A rigid contract fixing price works well in normal times since there is nothing to argue about. However, when value or cost is exceptional, one party will hold up the other , damaging the relationship and causing deadweight losses as parties withhold cooperation. We show that a judicious allocation of asset ownership can help by reducing the incentives to engage in hold up. In contrast to the literature, the driving force in our model is payoff uncertainty rather than noncontractible investments.
Download InfoIf 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.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13540.
Date of creation: Oct 2007
Date of revision:
Note: CF LE
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Find related papers by JEL classification:
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
- K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-10-27 (All new papers)
- NEP-BEC-2007-10-27 (Business Economics)
- NEP-EXP-2007-10-27 (Experimental Economics)
- NEP-LAW-2007-10-27 (Law & Economics)
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.:
- Oliver Hart & John Moore, 1988.
"Property Rights and the Nature of the Firm,"
495, Massachusetts Institute of Technology (MIT), Department of Economics.
- Francine Lafontaine & Margaret Slade, 2007.
"Vertical Integration and Firm Boundaries: The Evidence,"
Journal of Economic Literature,
American Economic Association, vol. 45(3), pages 629-685, September.
- Lafontaine, Francine & Slade, Margaret, 2007. "Vertical Integration and Firm Boundaries : The Evidence," The Warwick Economics Research Paper Series (TWERPS) 799, University of Warwick, Department of Economics.
- Maija Halonen, 2002. "Reputation And The Allocation Of Ownership," Economic Journal, Royal Economic Society, vol. 112(481), pages 539-558, July.
- George Baker & Robert Gibbons & Kevin J. Murphy, 2002. "Relational Contracts And The Theory Of The Firm," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 39-84, February.
- Raghuram G. Rajan & Luigi Zingales, 1998.
"Power In A Theory Of The Firm,"
The Quarterly Journal of Economics,
MIT Press, vol. 113(2), pages 387-432, May.
- Raghuram G. Rajan & Luigi Zingales, . "Power in a Theory of the Firm," CRSP working papers 335, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- Raghuram G. Rajan & Luigi Zingales, 1997. "Power in a Theory of the Firm," NBER Working Papers 6274, National Bureau of Economic Research, Inc.
- Rajan, Raghuram G & Zingales, Luigi, 1998. "Power in a Theory of the Firm," CEPR Discussion Papers 1777, C.E.P.R. Discussion Papers.
- Wernerfelt, Birger, 1997. "On the Nature and Scope of the Firm: An Adjustment-Cost Theory," The Journal of Business, University of Chicago Press, vol. 70(4), pages 489-514, October.
- Williamson, Oliver E, 1971. "The Vertical Integration of Production: Market Failure Considerations," American Economic Review, American Economic Association, vol. 61(2), pages 112-23, May.
- Klein, Benjamin, 1996. "Why Hold-Ups Occur: The Self-Enforcing Range of Contractual Relationships," Economic Inquiry, Western Economic Association International, vol. 34(3), pages 444-63, July.
- Klein, Benjamin & Murphy, Kevin M, 1997. "Vertical Integration as a Self-Enforcing Contractual Arrangement," American Economic Review, American Economic Association, vol. 87(2), pages 415-20, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.