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On simple contracts, renegotiation under asymmetric information, and the hold-up problem

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  • Schmitz, Patrick W.

Abstract

In this paper it is demonstrated that voluntary bargaining over a collective decision under asymmetric information may well lead to ex post efficiency if the default decision is non-trivial. It is argued that the default decision may be interpreted as a 'simple' contract that the parties have written ex ante. This result is used in order to show that simple unconditional contracts which are renegotiated may allow the hold-up problem to be solved, even if the parties' valuations are private information.

Suggested Citation

  • Schmitz, Patrick W., 2002. "On simple contracts, renegotiation under asymmetric information, and the hold-up problem," MPRA Paper 12530, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:12530
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    File URL: https://mpra.ub.uni-muenchen.de/12530/1/MPRA_paper_12530.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Contract theory; Private information; Hold-up problem;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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