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Endogenous Property Rights in a Hold up-Experiment

In a hold-up experiment designed to test theoretical predictions following from Hart (1995) and deMeza/Lockwood (1998) regarding investment behavior Sonnemans et al. (2001) (SOS) find only a partial confirmation of theory. According to SOS these deviations from standard theory can be explained by positive reciprocal behavior. In this paper, we replicate the experiment by SOS and add another group of treatments in which asset ownership is endogenized by auctioning off the assets. Our experiment shows that the results by SOS crucially depend on the ownership structure being exogenously assigned by the experimenter. We present experimental evidence that, by and large, corroborates the theoretical predictions made by Hart (1995).

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File URL: http://www.wiwi.tu-clausthal.de/fileadmin/Volkswirtschaftslehre/RePEc/pdf/ErleiSiemerEndPropExp04.pdf
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Paper provided by Abteilung für Volkswirtschaftslehre, Technische Universität Clausthal (Department of Economics, Technical University Clausthal) in its series TUC Working Papers in Economics with number 0002.

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Length: 32 pages
Date of creation: Apr 2004
Date of revision:
Handle: RePEc:tuc:tucewp:0002
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  1. Sloof, Randolph & Oosterbeek, Hessel & Riedl, Arno & Sonnemans, Joep, 2006. "Breach remedies, reliance and renegotiation," International Review of Law and Economics, Elsevier, vol. 26(3), pages 263-296, September.
  2. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory Of Fairness, Competition, And Cooperation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 817-868, August.
  3. Oliver Hart & John Moore, 2007. "Contracts as Reference Points," ESE Discussion Papers 170, Edinburgh School of Economics, University of Edinburgh.
  4. Ellingsen, Tore & Johannesson, Magnus, 2000. "Is There a Hold-up Problem?," SSE/EFI Working Paper Series in Economics and Finance 357, Stockholm School of Economics.
  5. Sloof, Randolph & Sonnemans, Joep & Oosterbeek, Hessel, 2004. "Specific investments, holdup, and the outside option principle," European Economic Review, Elsevier, vol. 48(6), pages 1399-1410, December.
  6. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817, March.
  7. Oliver Hart & Sanford Grossman, 1985. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Working papers 372, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Gary Charness & Matthew Rabin, 2002. "Understanding Social Preferences With Simple Tests," The Quarterly Journal of Economics, MIT Press, vol. 117(3), pages 817-869, August.
  9. Anderhub, Vital & Konigstein, Manfred & Kubler, Dorothea, 2003. "Long-term work contracts versus sequential spot markets: experimental evidence on firm-specific investment," Labour Economics, Elsevier, vol. 10(4), pages 407-425, August.
  10. Fehr, Ernst & Kremhelmer, Susanne & Schmidt, Klaus M., 2008. "Fairness and the optimal allocation of ownership rights," Munich Reprints in Economics 20626, University of Munich, Department of Economics.
  11. 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.
  12. Oliver Hart & John Moore, 1988. "Property Rights and the Nature of the Firm," Working papers 495, Massachusetts Institute of Technology (MIT), Department of Economics.
  13. David De Meza & Ben Lockwood, 1998. "Does Asset Ownership Always Motivate Managers? Outside Options And The Property Rights Theory Of The Firm," The Quarterly Journal of Economics, MIT Press, vol. 113(2), pages 361-386, May.
  14. Ernst Fehr & Oliver Hart & Christian Zehnder, 2011. "Contracts as Reference Points--Experimental Evidence," American Economic Review, American Economic Association, vol. 101(2), pages 493-525, April.
  15. Randolph Sloof & Hessel Oosterbeek & Joep Sonnemans, 2007. "Does Making Specific Investments Unobservable Boost Investment Incentives?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(4), pages 911-942, December.
  16. Hackett, Steven C, 1993. "Incomplete Contracting: A Laboratory Experimental Analysis," Economic Inquiry, Western Economic Association International, vol. 31(2), pages 274-97, April.
  17. Elizabeth Hoffman & Matthew Spitzer, 1981. "The Coase Theorem: Some Experimental Tests," Discussion Papers 470, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  18. Sonnemans, Joep & Oosterbeek, Hessel & Sloof, Randolp, 2001. "On the Relation between Asset Ownership and Specific Investments," Economic Journal, Royal Economic Society, vol. 111(474), pages 791-820, October.
  19. Hackett, Steven C, 1994. "Is Relational Exchange Possible in the Absence of Reputations and Repeated Contact?," Journal of Law, Economics and Organization, Oxford University Press, vol. 10(2), pages 360-89, October.
  20. Hoffman Elizabeth & McCabe Kevin & Shachat Keith & Smith Vernon, 1994. "Preferences, Property Rights, and Anonymity in Bargaining Games," Games and Economic Behavior, Elsevier, vol. 7(3), pages 346-380, November.
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