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Holdup, Search and Inefficiency

  • Shingo Ishiguro

    ()

    (Graduate School of Economics, Osaka University)

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://www2.econ.osaka-u.ac.jp/library/global/dp/0713.pdf
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Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 07-13.

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Length: 46 pages
Date of creation: May 2007
Date of revision:
Handle: RePEc:osk:wpaper:0713
Contact details of provider: Web page: http://www.econ.osaka-u.ac.jp/
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  1. Leonardo Felli & Kevin Roberts, 2000. "Does Competition Solve the Hold-Up Problem?," CESifo Working Paper Series 317, CESifo Group Munich.
  2. Samuelson, L., 1988. "Disagreement In Markets With Matching And Bargaining," Papers 9-86-1, Pennsylvania State - Department of Economics.
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  4. Harold L. Cole & George J. Mailath & Andrew Postlewaite, . "Efficient Non-Contractible Investments in Large Economies," CARESS Working Papres 00-05, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  5. Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany.
  6. 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 811-37, September.
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  9. Arial Rubinstein & Asher Wolinsky, 1990. "Decentralized Trading, Strategic Behaviour and the Walrasian Outcome," Levine's Working Paper Archive 622, David K. Levine.
  10. Busch, L-A. & Wen, Q., 1991. "Perfect Equilibria in a Negotiation Model," University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers 9108, University of Western Ontario, The Centre for the Study of International Economic Relations.
  11. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1994. "Renegotiation Design with Unverifiable Information," Scholarly Articles 12375014, Harvard University Department of Economics.
  12. Jehiel, Philippe & Benny Moldovanu, 1993. "Cyclical Delay in Bargaining with "Externalities"," Discussion Paper Serie B 234, University of Bonn, Germany.
  13. Sakovics Jozsef, 1993. "Delay in Bargaining Games with Complete Information," Journal of Economic Theory, Elsevier, vol. 59(1), pages 78-95, February.
  14. Inderst, Roman, 2001. "Screening in a Matching Market," Review of Economic Studies, Wiley Blackwell, vol. 68(4), pages 849-68, October.
  15. de Meza, David & Lockwood, Ben, 2004. "Too Much Investment : A Problem Of Coordination Failure," The Warwick Economics Research Paper Series (TWERPS) 703, University of Warwick, Department of Economics.
  16. Oliver Hart & John Moore, 1985. "Incomplete Contracts and Renegotiation," Working papers 367, Massachusetts Institute of Technology (MIT), Department of Economics.
  17. Hart, Oliver D. & Moore, John, 1990. "Property Rights and the Nature of the Firm," Scholarly Articles 3448675, Harvard University Department of Economics.
  18. Samuelson, Larry, 1992. "Disagreement in Markets with Matching and Bargaining," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 177-85, January.
  19. Michael Peters & Aloysius Siow, 2000. "Competing Pre-marital Investments," Working Papers peters-00-01, University of Toronto, Department of Economics.
  20. Acemoglu, Daron & Shimer, Robert, 1999. "Holdups and Efficiency with Search Frictions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 827-49, November.
  21. Jehiel, Philippe & Moldovanu, Benny, 1995. "Negative Externalities May Cause Delay in Negotiation," Econometrica, Econometric Society, vol. 63(6), pages 1321-35, November.
  22. Che,Y.-K. & Sakovics,J., 2001. "A dynamic theory of holdup," Working papers 25, Wisconsin Madison - Social Systems.
  23. Harold L. Cole & George J. Mailath & Andrew Postlewaite, . "Efficient Non-Contractible Investments," Penn CARESS Working Papers 08d6793d32cab8f6e1f46dac0, Penn Economics Department.
  24. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
  25. Acemoglu, Daron, 2001. "Good Jobs versus Bad Jobs," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 1-21, January.
  26. Merlo, Antonio & Wilson, Charles A, 1995. "A Stochastic Model of Sequential Bargaining with Complete Information," Econometrica, Econometric Society, vol. 63(2), pages 371-99, March.
  27. Frankel, David M., 1998. "Creative Bargaining," Staff General Research Papers 11927, Iowa State University, Department of Economics.
  28. Rogerson, William P, 1992. "Contractual Solutions to the Hold-Up Problem," Review of Economic Studies, Wiley Blackwell, vol. 59(4), pages 777-93, October.
  29. Acemoglu, Daron, 1996. "A Microfoundation for Social Increasing Returns in Human Capital Accumulation," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 779-804, August.
  30. Cai, Hongbin, 2000. "Delay in Multilateral Bargaining under Complete Information," Journal of Economic Theory, Elsevier, vol. 93(2), pages 260-276, August.
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