Split It Up to Create Incentives : Investment, Public Goods and Crossing the River

When should one pay the ferryman? When to pay for the delivery of a good and how to invest in a public good if there is a single transaction and institutions are costly? We show how to solve the hold-up problem. The idea is to appropriately split up the desired total contribution into several separate contributions that are made in sequence, each party threatening to discontinue if others deviate. Our solution concept is based on subgame perfection where players are either selfish and do not care about `peanuts' or are socially minded as long as there is no deviation