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The hold-up problem, innovations, and limited liability

  • Schmitz, Patrick W.

An inventor can invest research effort to come up with an innovation. Once an innovation is made, a contract is negotiated and unobservable effort must be exerted to develop a product. In the absence of liability constraints, the inventor's investment incentives are increasing in his bargaining power. Yet, given limited liability, overinvestments may occur and the inventor's investment incentives may be decreasing in his bargaining power.

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File URL: http://mpra.ub.uni-muenchen.de/43407/1/MPRA_paper_43407.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 43407.

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Date of creation: Dec 2012
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Handle: RePEc:pra:mprapa:43407
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  1. Ma, Ching-To Albert, 1994. "Renegotiation and Optimality in Agency Contracts," Review of Economic Studies, Wiley Blackwell, vol. 61(1), pages 109-29, January.
  2. Hart, Oliver D. & Moore, John, 1990. "Property Rights and the Nature of the Firm," Scholarly Articles 3448675, Harvard University Department of Economics.
  3. Grossman, Sanford J & Hart, Oliver, 1985. "The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration," CEPR Discussion Papers 70, C.E.P.R. Discussion Papers.
  4. Schmitz, Patrick W, 2005. "Information Gathering, Transaction Costs and the Property Rights Approach," CEPR Discussion Papers 5417, C.E.P.R. Discussion Papers.
  5. Patrick Bajari & Steven Tadelis, 1999. "Incentives versus Transaction Costs: A Theory of Procurement Contracts," Working Papers 99029, Stanford University, Department of Economics.
  6. Schmitz, Patrick W, 2001. "The Hold-up Problem and Incomplete Contracts: A Survey of Recent Topics in Contract Theory," Bulletin of Economic Research, Wiley Blackwell, vol. 53(1), pages 1-17, January.
  7. Matthias Kräkel & Anja Schöttner, 2009. "Minimum Wages and Excessive Effort Supply," Bonn Econ Discussion Papers bgse8_2009, University of Bonn, Germany.
  8. Schmitz, Patrick W., 2008. "Incomplete contracts, the hold-up problem, and asymmetric information," Economics Letters, Elsevier, vol. 99(1), pages 119-122, April.
  9. Oliver Hart & John Moore, 1998. "Foundations of Incomplete Contracts," NBER Working Papers 6726, National Bureau of Economic Research, Inc.
  10. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817, March.
  11. Oliver Hart & Andrei Shleifer & Robert Vishny, 1996. "The Proper Scope of Government: Theory and an Application to Prisons," Harvard Institute of Economic Research Working Papers 1778, Harvard - Institute of Economic Research.
  12. Aghion, Philippe & Tirole, Jean, 1994. "Opening the black box of innovation," European Economic Review, Elsevier, vol. 38(3-4), pages 701-710, April.
  13. Hoppe, Eva I. & Schmitz, Patrick W., 2011. "Can contracts solve the hold-up problem? Experimental evidence," Games and Economic Behavior, Elsevier, vol. 73(1), pages 186-199, September.
  14. Jean Tirole, 1999. "Incomplete Contracts: Where Do We Stand?," Econometrica, Econometric Society, vol. 67(4), pages 741-782, July.
  15. Aghion, P. & Tirole, J., 1993. "On the Management of Innovation," Working papers 93-12, Massachusetts Institute of Technology (MIT), Department of Economics.
  16. Innes, Robert D., 1990. "Limited liability and incentive contracting with ex-ante action choices," Journal of Economic Theory, Elsevier, vol. 52(1), pages 45-67, October.
  17. Aghion, Philippe & Tirole, Jean, 1994. "The Management of Innovation," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 1185-1209, November.
  18. repec:cup:cbooks:9780521576475 is not listed on IDEAS
  19. Pitchford, Rohan, 1998. "Moral hazard and limited liability: The real effects of contract bargaining," Economics Letters, Elsevier, vol. 61(2), pages 251-259, November.
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