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The Hold-up Problem

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Abstract

Hold-up arises when part of the return on an agent's relationship-specific investments is ex post expropriable by his trading partner. The hold-up problem has played an important role as a foundation of modern contract and organization theory, as the associated inefficiencies have justified many prominent organizational and contractual practices. We formally describe the main inefficiency hypothesis and sketch out the remedies suggested, as well as the more recent re-examination of the relevance of these theories.

Suggested Citation

  • Yeon-Koo Che & Jozsef Sakovics, 2006. "The Hold-up Problem," ESE Discussion Papers 142, Edinburgh School of Economics, University of Edinburgh.
  • Handle: RePEc:edn:esedps:142
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    File URL: http://www.econ.ed.ac.uk/papers/id142_esedps.pdf
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    Cited by:

    1. Berardi, Nicoletta & Seabright, Paul, 2010. "Joint Ventures as a Commitment Device Against Lobbies," CEPR Discussion Papers 7714, C.E.P.R. Discussion Papers.
    2. Susanne Ohlendorf & Patrick W. Schmitz, 2012. "Repeated Moral Hazard And Contracts With Memory: The Case Of Risk‐Neutrality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(2), pages 433-452, May.
    3. Christian A. Ruzzier, 2009. "Asset Specificity and Vertical Integration: Williamson’s Hypothesis Reconsidered," Harvard Business School Working Papers 09-119, Harvard Business School.

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    Keywords

    Coase theorem; contract theory; contract law; economics; incomplete contracts; procurement;

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