Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/30096 
Year of Publication: 
2009
Series/Report no.: 
MAGKS Joint Discussion Paper Series in Economics No. 2009,09
Publisher: 
Philipps-University Marburg, Faculty of Business Administration and Economics, Marburg
Abstract: 
Any cooperation that profits from relation-specific investments suffers from the well-known hold-up problem. If investments are not enforceable by an outside authority, the gains fall prey to individual opportunism caused by a free-rider problem. If, in addition, individual investments exhibit positive cross effects, Che and Hausch (1999) provide a negative result and show that contracts cannot overcome the hold up due to a lack of verifiable commitment. This paper develops a mechanism that provides such a commitment device: (1) It introduces an acknowledgement game that procures reliable. (2) It embeds the original contracting problem into two institutional designs - a market based one and a private design - that support enforcement. These two devices reestablish efficient investments as enforceable results of a contract.
Document Type: 
Working Paper

Files in This Item:
File
Size
268.59 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.