Hold Up Problem Beispiel

The hold up problem see hart 1995 results from situations where it is difficult to write complete contracts.

Hold up problem beispiel. The specific form of the optimal transaction cannot be determined with certainty beforehand. A historic example of how the difficulty to judge quality and hence the difficulty to write contacts contingent on quality can lead to a hold up problem is provided in a recent paper by harrison and markevich 2007. This problem known as hold up is inherent in many bilateral exchanges. In economics the hold up problem is central to the theory of incomplete contracts and shows the difficulty in writing complete contracts.

The hold up problem is central to the theory of incomplete contracts. Parties to a future transaction must make noncontractible relationship specific investments before the transaction takes place. The hold up problem is a situation where two parties may be able to work most effici. A hold up problem arises when two factors are present.

It shows how the difficulty in writing complete contracts and the resulting need to renegotiate can lead to underinvestment. 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.