Abstract The paper reconsiders the hold-up problem in long-term bilateral trade with specific investments. In our framework, the parties face several trading opportunities (goods) whose characteristics cannot be described at the start of the relationship. Specifically, there exists an investment...

Human capital theory distinguishes between training in general-usage and firm-specific skills. In his seminal work, Becker (1964) argues that employers will not be willing to invest in general training when labor markets are competitive. However, they are willing to invest in specific training...

The paper reconsiders the theory of fiscal federalism in a framework inspired by property-rights theory. We set up a two-period model where on a first stage a region in a federation can expend value-enhancing investments into a public project. The project can be implemented on a second stage,...

The paper investigates a model where two parties sequentially invest in a joint project (an asset). Investments and the project value are unverifiable, and A is wealth constrained so that an initial outlay must be financed by either agent B or an external investor C, say a bank. We show that an...

We study an adverse selection problem in which information that is imperfectly correlated with the agent's type becomes public ex post. Unbounded penalties are ruled out by assuming that the agent is wealth constrained. The following conclusions emerge. If the agent's utility is increasing in...

This paper investigates a procurement relationship between a welfare-oriented government and a private supplier. The agents face several versions of the trading good which differ in quality and production costs, and the differences between those items are undescribable ex ante. In presence of...

We investigate a team production problem where two parties sequentially invest to generate a joint surplus. In this framework, it is possible to implement the first best even if the investment return is highly uncertain. The optimal contract entails a basic dichotomy: it is a simple option...

The paper studies a generic bilateral trade model with relationship-specific investments. Only the seller invests, and subsequent trade becomes inefficient if his investments are too low. We show that the seller may defect strategically under a fixed-price contract even though he attains any...