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Competition and Hold-ups

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  • Kevin Roberts
  • Leonardo Felli

Abstract

In an environment in which both workers and firms undertake match specific investments, the presence of market competition for matches may solve the hold-up problems generated by the absence of complete contingent contracts. In particular, this paper shows that in a world in which workers and firms investments are separated by market competition and contracts specify a simple (non-contingent) wage payment, investments are constrained efficient. Indeed, workers and firms invest efficiently given the equilibrium matches in which they are involved.

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File URL: http://www.nuff.ox.ac.uk/economics/papers/1999/w17/Hold-ups.pdf
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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 1999-W17.

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Date of creation: 01 Jun 1999
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Handle: RePEc:oxf:wpaper:1999-w17

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  1. Holmstrom, Bengt, 1999. "The Firm as a Subeconomy," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 15(1), pages 74-102, April.
  2. 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.
  3. Acemoglu, Daron, 1997. "Training and Innovation in an Imperfect Labour Market," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 64(3), pages 445-64, July.
  4. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
  5. Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 103(3), pages 441-63, August.
  6. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(1), pages 1-29, February.
  7. Maskin, Eric & Tirole, Jean, 1999. "Two Remarks on the Property-Rights Literature," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 66(1), pages 139-49, January.
  8. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum 37/1995, Oslo University, Department of Economics.
  9. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
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