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"Costly Coasian Contracts''

  • Luca Anderlini
  • Leonardo Felli

We identify and investigate the basic `hold-up' problem which arises whenever each party to a contingent contract has to pay some ex-ante cost for the contract to become feasible. We then proceed to show that, under plausible circumstances, a `contractual solution' to this hold-up problem is not available. This is because a contractual solution to the hold-up problem typically entails writing a `contract over a contract' which generates a fresh set of ex-ante costs, and hence is associated with a new hold-up problem. We conclude the paper investigating two applications of our results to a static and to a dynamic principal-agent model.

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Paper provided by University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences in its series CARESS Working Papres with number 97-11.

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Handle: RePEc:wop:pennca:97-11
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  1. repec:ner:ucllon: is not listed on IDEAS
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