IDEAS home Printed from https://ideas.repec.org/p/hal/journl/hal-02655908.html
   My bibliography  Save this paper

Specific performance, separability condition and the hold-up problem

Author

Listed:
  • M’hand Fares

    (AGIR - AGroécologie, Innovations, teRritoires - INRA - Institut National de la Recherche Agronomique - Toulouse INP - Institut National Polytechnique (Toulouse) - UT - Université de Toulouse, UP1 - Université Paris 1 Panthéon-Sorbonne)

Abstract

Edlin and Reichelstein (1996) claim that an efficient solution to the hold-up problem can be implemented with a specific performance contract if a separability condition is satisfied, i.e. if the effect of investments and the effect of the state of the world enter the parties valuation functions in an additively separable manner. This note shows that this separability condition generates the same solution than if the valuation functions are independent of the sate of nature(proposition 1). This implies that a simple menu of prices that does not specify the level of trade can solve the hold-up problem (proposition 2). That is, specifying the terms of trade by writing a specific performance contract is useless with the separability condition.

Suggested Citation

  • M’hand Fares, 2009. "Specific performance, separability condition and the hold-up problem," Post-Print hal-02655908, HAL.
    • Handle: RePEc:hal:journl:hal-02655908
    Note: View the original document on HAL open archive server: https://hal.inrae.fr/hal-02655908
    as

    Download full text from publisher

    File URL: https://hal.inrae.fr/hal-02655908/document
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Pierpaolo Battigalli & Giovanni Maggi, 2002. "Rigidity, Discretion, and the Costs of Writing Contracts," American Economic Review, American Economic Association, vol. 92(4), pages 798-817, September.
    2. Luca Anderlini & Leonardo Felli, 1994. "Incomplete Written Contracts: Undescribable States of Nature," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 1085-1124.
    3. Pierpaolo Battigalli & Giovanni Maggi, 2008. "Costly contracting in a long‐term relationship," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 352-377, June.
    4. M'hand Fares, 2006. "Renegotiation Design and Contract Solutions to the Hold‐Up Problem," Journal of Economic Surveys, Wiley Blackwell, vol. 20(5), pages 731-756, December.
    5. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    6. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
    7. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
    8. Wagener, Andreas, 2006. "Chebyshev's Algebraic Inequality and comparative statics under uncertainty," Mathematical Social Sciences, Elsevier, vol. 52(2), pages 217-221, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. M'hand Fares, 2009. "Specific Performance, Separability Condition and the Hold-Up Problem," Economics Bulletin, AccessEcon, vol. 29(3), pages 2055-2062.
    2. M’hand Fares, 2011. "Can a specific performance contract solve the hold-up problem? [Un contrat à obligation d’exécution peut-il résoudre le problème du hold-up ?]," Post-Print hal-02647357, HAL.
    3. Ola Kvaløy & Trond E. Olsen, 2009. "Endogenous Verifiability and Relational Contracting," American Economic Review, American Economic Association, vol. 99(5), pages 2193-2208, December.
    4. Surajeet Chakravarty & W. Bentley MacLeod, 2006. "Construction Contracts (or “How to Get the Right Building at the Right Price?”)," CESifo Working Paper Series 1714, CESifo.
    5. Mehrdad Vahabi, 1999. "From Walrasian General Equilibrium to Incomplete Contracts: Making Sense of Institutions," Post-Print halshs-03704424, HAL.
    6. Oriol Carbonell-Nicolau & Diego Comin, 2005. "Testing Out Contractual Incompleteness: Evidence from Soccer," Departmental Working Papers 200501, Rutgers University, Department of Economics.
    7. James M. Malcomson, 2012. "Relational Incentive Contracts [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    8. Patrick Bolton & Antoine Faure-Grimaud, 2010. "Satisficing Contracts," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(3), pages 937-971.
    9. Ola Kvaløy & Trond E. Olsen, 2016. "Incentive Provision when Contracting is Costly," Economica, London School of Economics and Political Science, vol. 83(332), pages 741-767, October.
    10. Dessí, Roberta, 2009. "Contractual Execution, Strategic Incompleteness and Venture Capital," CEPR Discussion Papers 7413, C.E.P.R. Discussion Papers.
    11. Hideshi Itoh, 2023. "What do contracts do to facilitate relationships?," The Japanese Economic Review, Springer, vol. 74(3), pages 333-354, July.
    12. Committee, Nobel Prize, 2016. "Oliver Hart and Bengt Holmström: Contract Theory," Nobel Prize in Economics documents 2016-1, Nobel Prize Committee.
    13. Wu, Steven Y., 2013. "Adapting Contract Theory to Fit Contract Farming," 2014 Allied Social Sciences Association (ASSA) Annual Meeting, January 3-5, 2014, Philadelphia, PA 161894, Agricultural and Applied Economics Association.
    14. Surajeet Chakravarty & W. Bentley MacLeod, 2009. "Contracting in the shadow of the law," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 533-557, September.
    15. Eduard Marinov, 2016. "The 2016 Nobel Prize in Economics," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 6, pages 97-149.
    16. Peter G. Klein & Michael E. Sykuta, 2010. "Editors’ Introduction," Chapters, in: Peter G. Klein & Michael E. Sykuta (ed.), The Elgar Companion to Transaction Cost Economics, chapter 1, Edward Elgar Publishing.
    17. Nabil I. Al-Najjar & Luca Anderlini & Leonardo Felli, 2006. "Undescribable Events," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(4), pages 849-868.
    18. Nathan H. Miller, 2008. "Competition When Consumers Value Firm Scope," EAG Discussions Papers 200807, Department of Justice, Antitrust Division.
    19. Kim, Jongwook & Mahoney, Joseph T., 2008. "A Strategic Theory of the Firm as a Nexus of Incomplete Contracts: A Property Rights Approach," Working Papers 08-0108, University of Illinois at Urbana-Champaign, College of Business.
    20. W. Bentley MacLeod, 1997. "Complexity, Contract and the Employment Relationship," Boston College Working Papers in Economics 342., Boston College Department of Economics.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:journl:hal-02655908. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.