The Limitations of Buyer-Option Contracts in Solving the Holdup Problem
In a recent article, Lyon and Rasmusen (2004) argue that buyer-option contracts are more effective at solving the holdup problem than has been previously recognized. This article examines the robustness of that claim to changes in the bargaining game they analyze and to changes in the nature of the trade between the buyer and seller. I find that the possibility of renegotiation in a model of cooperative investment (Che and Hausch 1999) does generate a holdup problem if the players discount the future and the bargaining game is sufficiently long. This change in the bargaining game does not resurrect the holdup problem in the basic product complexity model (of Hart and Moore 1999). However, if the good to be traded must be supplied continually rather than only one time, then the holdup problem reemerges (even with buyer-option contracts) for some parameter values. Copyright 2007, Oxford University Press.
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 23 (2007)
Issue (Month): 1 (April)
|Contact details of provider:|| Postal: Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK|
Fax: 01865 267 985
Web page: http://jleo.oupjournals.org/
|Order Information:||Web: http://www.oup.co.uk/journals|
When requesting a correction, please mention this item's handle: RePEc:oup:jleorg:v:23:y:2007:i:1:p:127-140. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.