Hold-up, asset ownership, and reference points
By: Oliver Hart.
Contributors: National Bureau of Economic Research.
Series: NBER working paper series -- no. 13540.; Working paper series (National Bureau of Economic Research) -- working paper no. 13540.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 42
Subjects: Commerce -- Econometric models
Description: We study two parties who desire a smooth trading relationship under conditions of value and cost uncertainty. A rigid contract fixing price works well in normal times since there is nothing to argue about. However, when value or cost is exceptional, one party will hold up the other , damaging the relationship and causing deadweight losses as parties withhold cooperation. We show that a judicious allocation of asset ownership can help by reducing the incentives to engage in hold up. In contrast to the literature, the driving force in our model is payoff uncertainty rather than noncontractible investments.
Notes: "October 2007"

Includes bibliographical references (p. 40-42).

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