A simple economic teaching experiment on the hold-up problem
AbstractThe hold-up problem is central to the theory of incomplete contracts. It shows how the difficulty to write complete contracts and the resulting need to renegotiate can lead to underinvestment. We describe the design of a simple teaching experiment that illustrates the hold-up problem. The model used is a simple perfect information game. The experiment can hence also be used to illustrate the concept of subgame perfect equilibrium and the problem of making non-binding commitments.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 24772.
Date of creation: 03 Sep 2010
Date of revision:
classroom experiment; holdup problem;
Other versions of this item:
- Dieter Balkenborg & Todd Kaplan & Timothy Miller, 2012. "A Simple Economic Teaching Experiment on the Hold-Up Problem," The Journal of Economic Education, Taylor & Francis Journals, vol. 43(4), pages 377-385, October.
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
- C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-09-11 (All new papers)
- NEP-EXP-2010-09-11 (Experimental Economics)
- NEP-GTH-2010-09-11 (Game Theory)
- NEP-IND-2010-09-11 (Industrial Organization)
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