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Universität zu Köln
Wirtschafts- und Sozialwissenschaftliche Fakultät

Staatswissenschaftliches Seminar - Prof. Schmitz

Simple Contracts, Renegotiation under Asymmetric Information, and the Hold-up Problem

Patrick W. Schmitz

European Economic Review, Vol. 46 (1), 2002, 169-188.

Abstract. In this article it is demonstrated that voluntary bargaining over a collective decision under asymmetric information may well lead to ex post efficiency if the default decision is non-trivial. It is argued that the default decision may be interpreted as a 'simple' contract that the parties have written ex ante. This result is used in order to show that simple unconditional contracts which are renegotiated may allow the hold-up problem to be solved, even if the parties' valuations are private information.

The working paper version is available for download at SSRN.

The paper is available for download.