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Universität zu Köln
Wirtschafts- und Sozialwissenschaftliche Fakultät

Staatswissenschaftliches Seminar - Prof. Schmitz

Incomplete Contracts, the Hold-Up Problem, and Asymmetric Information

Patrick W. Schmitz

Economics Letters, Vol. 99 (1), 2008, 119-122.

Abstract. Consider a buyer and a seller who can trade a good. The buyer can make a relationship-specific investment that increases his expected value from receiving the good. Given symmetric information, the buyer's investment incentives are always increasing in his bargaining power. While this result is robust under one-sided private information (i.e., if either only the seller or only the buyer has private information), it can be overturned under two-sided private information.

The working paper version is available for download (CEPR Discussion Paper 6322).

The paper is available for download.