Opportunism in Sequential Investment Settings: On Holdups and Holdouts
The holdup and holdout problems arise in different contexts, but they share certain fundamental similarities that have not generally been recognized. In particular, both involve activities requiring an up-front, non-salvageable investment, and both require the investor to purchase an input, the price of which is determined by bargaining after the initial investment has been made. The effect of the up-front investment is to reduce the investor’s bargaining power with the seller of the input. The anticipation of the outcome of this bargaining creates a disincentive for the investor to undertake the project in the first place, causing some efficient projects to be foregone. Remedies for the two problems, though outwardly different, share features that reflect the common source of their inefficiency.
|Date of creation:||Apr 2014|
|Contact details of provider:|| Postal: University of Connecticut 365 Fairfield Way, Unit 1063 Storrs, CT 06269-1063|
Phone: (860) 486-4889
Fax: (860) 486-4463
Web page: http://www.econ.uconn.edu/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Patrick Bolton & Mathias Dewatripont, 2005.
MIT Press Books,
The MIT Press,
edition 1, volume 1, number 0262025760, January.
- Mathias Dewatripont & Patrick Bolton, 2005. "Contract theory," ULB Institutional Repository 2013/9543, ULB -- Universite Libre de Bruxelles.
- William P. Rogerson, 1984. "Efficient Reliance and Damage Measures for Breach of Contract," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 39-53, Spring.
- Edlin, Aaron S, 1996. "Cadillac Contracts and Up-Front Payments: Efficient Investment under Expectation Damages," Journal of Law, Economics and Organization, Oxford University Press, vol. 12(1), pages 98-118, April.
- Aaron S. Edlin, 1994. "Cadillac Contracts and Up-Front Payments: Efficient Investment Under Expectation Damages," NBER Working Papers 4915, National Bureau of Economic Research, Inc.
- Strange William C., 1995. "Information, Holdouts, and Land Assembly," Journal of Urban Economics, Elsevier, vol. 38(3), pages 317-332, November.
- Asami, Yasushi, 1985. "A game-theoretic approach to the division of profits from economic land development," Regional Science and Urban Economics, Elsevier, vol. 18(2), pages 233-246, May.
- Steven Shavell, 1980. "Damage Measures for Breach of Contract," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 466-490, Autumn.
- Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
- Arthur Zillante & Peter M. Schwarz & Dustin C. Read, 2014. "Land Aggregation Using Contingent and Guaranteed Payments," Southern Economic Journal, Southern Economic Association, vol. 80(3), pages 702-727, January.
- Ilya Segal, 1999. "Complexity and Renegotiation: A Foundation for Incomplete Contracts," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 57-82.
- Edlin, Aaron S & Reichelstein, Stefan, 1996. "Holdups, Standard Breach Remedies, and Optimal Investment," American Economic Review, American Economic Association, vol. 86(3), pages 478-501, June.
- Aaron S. Edlin & Stefan Reichelstein, 1995. "Holdups, Standard Breach Remedies, and Optimal Investment," NBER Working Papers 5007, National Bureau of Economic Research, Inc.
- Victor P. Goldberg, 1976. "Regulation and Administered Contracts," Bell Journal of Economics, The RAND Corporation, vol. 7(2), pages 426-448, Autumn. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:uct:uconnp:2014-08. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark McConnel)
If references are entirely missing, you can add them using this form.