Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86042
Authors: 
Sloof, Randolph
Year of Publication: 
2003
Series/Report no.: 
Tinbergen Institute Discussion Paper 03-099/1
Abstract: 
This paper investigates the extent of the holdup underinvestment problem in a buyer-seller relationship in which the seller has private information about his alternative trading opportunities. Theory predicts that, compared with a situation in which outside options are publicly observed, the seller obtains an informational rent while the buyer bears an informational loss. As a result the seller is predicted to invest more while the buyer is expected to invest less. In contrast to these predictions, private information appears to have no impact on the investment levels observed in the experiment. A second main finding is that investments do increase with the price-setting power of the investor. Overall the results question some recent theoretical suggestions that private information rents might substitute for price-setting power in mitigating holdup.
Subjects: 
holdup
private information
outside options
experiments
JEL: 
D82
L14
C91
Document Type: 
Working Paper

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