SSE/EFI Working Paper Series in Economics and Finance
Is There a Hold-up Problem?
() and Magnus Johannesson
Abstract: Most literature on the hold-up problem starts from the
assumption that ex post bargaining outcomes are insensitive to prior
investment costs. We argue that this approach is unsatisfactory. If the
bargaining procedure is relatively symmetric, it typically admits multiple
perfect equilibria, some of which give the investor a high enough payoff to
sustain efficient investment. Even if the bargaining procedure is
asymmetric and rigged against the investor, there may be investment if
agents are driven by moral concerns or if communication creates commitment.
Laboratory experiments indicate that communication is necessary and
sufficient for agents to coordinate on efficient outcomes when the
bargaining game is symmetric. When the bargaining game is rigged against
the investor, the hold-up problem is mitigated, but not eliminated, by
moral behavior. Communication is quite credible, and we find that promises
are more believable that threats.
Keywords: Specific investments; bargaining; fairness; communication; (follow links to similar papers)
JEL-Codes: C78; L14; (follow links to similar papers)
43 pages, February 17, 2000
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