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.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13540.
Date of creation: Oct 2007
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Publication status: published as Oliver Hart, 2009. "Hold-Up, Asset Ownership, and Reference Points-super-," The Quarterly Journal of Economics, MIT Press, vol. 124(1), pages 267-300, February.
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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)
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