DP6322 Incomplete Contracts, the Hold-Up Problem and Asymmetric Information

Author(s): Patrick W. Schmitz
Publication Date: June 2007
Keyword(s): hold-up problem, incomplete contracts, investment incentives
JEL(s): D82, D86
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=6322

Given symmetric information, in a standard hold-up problem a buyer's investment incentives are always increasing in his bargaining power. While this result is robust under one-sided private information, it can be overturned under two-sided private information.