Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/78433
Authors: 
Schweizer, Urs
Year of Publication: 
2000
Series/Report no.: 
Bonn Econ Discussion Papers 15/2000
Abstract: 
So far, the existing literature on the hold-up problem with renegotiation has imposed assumptions such that the post-renegotiation payoffs are absolutely continuous functions. Since payoffs may fail to be differentiable at the investment profile to be sustained, first order conditions for incentives to invest must be handled with care. To avoid these difficulties, the present paper propagates a more elementary approach. A general condition is provided which necessarily must hold for an investment profile to be sustainable by a message contingent contract. If only one of the parties invests or, more generally, if investments can be aggregated into one dimension then the paper introduces assumptions leading to conditions which are necessary and sufficient for an investment profile to be sustainable.
Subjects: 
hold-up problem
renegotiation
mechanism design
message contingent contracts
JEL: 
D82
Document Type: 
Working Paper

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