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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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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
Date of revision:
Handle: RePEc:pra:mprapa:43407
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  1. Hart, Oliver D. & Moore, John, 1990. "Property Rights and the Nature of the Firm," Scholarly Articles 3448675, Harvard University Department of Economics.
  2. repec:oup:restud:v:61:y:1994:i:1:p:109-29 is not listed on IDEAS
  3. Patrick Bajari & Steven Tadelis, 1999. "Incentives versus Transaction Costs: A Theory of Procurement Contracts," Working Papers 99029, Stanford University, Department of Economics.
  4. Aghion, Philippe & Tirole, Jean, 1994. "On the Management of Innovation," IDEI Working Papers 36, Institut d'Économie Industrielle (IDEI), Toulouse.
  5. Hoppe, Eva I & Schmitz, Patrick W, 2009. "Can Contracts Solve the Hold-Up Problem? Experimental Evidence," CEPR Discussion Papers 7205, C.E.P.R. Discussion Papers.
  6. Aghion, Philippe & Tirole, Jean, 1994. "Opening the black box of innovation," European Economic Review, Elsevier, vol. 38(3-4), pages 701-710, April.
  7. Kräkel, Matthias & Schöttner, Anja, 2010. "Minimum wages and excessive effort supply," Economics Letters, Elsevier, vol. 108(3), pages 341-344, September.
  8. repec:oup:qjecon:v:112:y:1997:i:4:p:1127-61 is not listed on IDEAS
  9. 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.
  10. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475.
  11. Jean Tirole, 1999. "Incomplete Contracts: Where Do We Stand?," Econometrica, Econometric Society, vol. 67(4), pages 741-782, July.
  12. repec:oup:restud:v:66:y:1999:i:1:p:115-38 is not listed on IDEAS
  13. Schmitz, Patrick W, 2005. "Information Gathering, Transaction Costs and the Property Rights Approach," CEPR Discussion Papers 5417, C.E.P.R. Discussion Papers.
  14. Schmitz, Patrick W., 2001. "The Hold-Up Problem and Incomplete Contracts: A Survey of Recent Topics in Contract Theory," MPRA Paper 12562, University Library of Munich, Germany.
  15. Schmitz, Patrick W, 2007. "Incomplete Contracts, the Hold-Up Problem and Asymmetric Information," CEPR Discussion Papers 6322, C.E.P.R. Discussion Papers.
  16. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817, July.
  17. repec:oup:qjecon:v:109:y:1994:i:4:p:1185-1209 is not listed on IDEAS
  18. Pitchford, Rohan, 1998. "Moral hazard and limited liability: The real effects of contract bargaining," Economics Letters, Elsevier, vol. 61(2), pages 251-259, November.
  19. 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.
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