Hold-up and Sequential Specific Investments
We explore the hold-up problem when parties can make investments simultaneously or sequentially. Sequencing of investments can allow some projects to proceed that would not be feasible with a simultaneous regime. However, a cost of sequencing is that it can disadvantage some parties, reducing their incentive to invest. The mere possibility of sequential investment can prevent trade from occurring; this can be interpreted as a new form of hold-up. If both parties prefer to invest second, as the number of potential investment periods is increased, the subgame-perfect equilibrium can switch between a prisoners' dilemma and a coordination game.
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Volume (Year): 35 (2004)
Issue (Month): 2 (Summer)
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- Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817, July.
- Darwin V. Neher, 1999. "Staged Financing: An Agency Perspective," Review of Economic Studies, Oxford University Press, vol. 66(2), pages 255-274.
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