Contractual solutions to hold-up problems with quality uncertainty and unobservable investments
Consider a seller and a buyer who write a contract. After that, the seller produces a good. She can influence the expected quality of the good by making unobservable investments. Only the seller learns the realized quality. Finally, trade can occur. It is always ex post efficient to trade. Yet, it may be impossible to achieve the first best, even though the risk-neutral parties are symmetrically informed at the contracting stage and complete contracts can be written. The second best is characterized by distortions that are reminiscent of adverse selection models (i.e., models with precontractual private information but without hidden actions).
Year of publication: |
2010
|
---|---|
Authors: | Schmitz, Patrick W. |
Published in: |
Journal of Mathematical Economics. - Elsevier, ISSN 0304-4068. - Vol. 46.2010, 5, p. 807-816
|
Publisher: |
Elsevier |
Keywords: | Hold-up problem Hidden action Hidden information Common values |
Saved in:
Online Resource
Saved in favorites
Similar items by person
-
Die theoretische Fundierung unvollständiger Verträge
Ewerhart, Christian, (1996)
-
On simple contracts, renegotiation under asymmetric information, and the hold-up problem
Schmitz, Patrick W., (2002)
-
Book Review of “On Voting: a public choice approach” (Tullock, 1998)
Schmitz, Patrick W., (2000)
- More ...