Hold Up Problem Beispiel

The hold up problem is central to the theory of incomplete contracts.

Hold up problem beispiel. Hold up problem fisher general motors and the nature of the firm benjamin klein university of california los angeles abstract after working well for more than 5 years. The hold up problem is a situation where two parties may be able to work most effici. The hold up problem see hart 1995 results from situations where it is difficult to write complete contracts. In economics the hold up problem is central to the theory of incomplete contracts and shows the difficulty in writing complete contracts.

Manufacturers and suppliers often customize their equipment and production processes to the special needs of their partners knowing well that future re negotiation will confer part of the benefit from customization to their partners. It shows how the difficulty in writing complete contracts and the resulting need to renegotiate can lead to underinvestment. The specific form of the optimal transaction cannot be determined with certainty beforehand. We describe here the design of a simple teaching experiment that illustrates the hold up problem.

For instance workers and firms often invest in firm specific assets prior to negotiating for wages. The model used is a simple perfect information game. This problem known as hold up is inherent in many bilateral exchanges.