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Holdup, search, and inefficiency

Listed author(s):
  • Shingo Ishiguro

    ()

This paper investigates the holdup problem in the dynamic search market where buyers and sellers search for their trading partners and specific investments are made after match but before trade. We show that frictionless (competitive) market imposes severe limitations on attainable efficiencies: Markets with small friction make the holdup problem more serious than those with large friction because in any equilibrium, whether stationary or non-stationary, investment must be dropped down to the minimum level and trade must be delayed with positive probability.

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File URL: http://hdl.handle.net/10.1007/s00199-009-0471-z
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Article provided by Springer & Society for the Advancement of Economic Theory (SAET) in its journal Economic Theory.

Volume (Year): 44 (2010)
Issue (Month): 2 (August)
Pages: 307-338

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Handle: RePEc:spr:joecth:v:44:y:2010:i:2:p:307-338
DOI: 10.1007/s00199-009-0471-z
Contact details of provider: Web page: http://www.springer.com

Web page: http://saet.uiowa.edu/

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  22. Philippe Jehiel & Benny Moldovanu, 1995. "Cyclical Delay in Bargaining with Externalities," Review of Economic Studies, Oxford University Press, vol. 62(4), pages 619-637.
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  29. MacLeod, W Bentley & Malcomson, James M, 1993. "Investments, Holdup, and the Form of Market Contracts," American Economic Review, American Economic Association, vol. 83(4), pages 811-837, September.
  30. Daron Acemoglu, 1996. "A Microfoundation for Social Increasing Returns in Human Capital Accumulation," The Quarterly Journal of Economics, Oxford University Press, vol. 111(3), pages 779-804.
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