Contracting still matters! Or: How to design a letter of intent
Any cooperation that profits from relation-specific investments suf- fers 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, individ- ual investments exhib...
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| Veröffentlicht in: | MAGKS - Joint Discussion Paper Series in Economics (Band 09-2009) |
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| Autoren: | , |
| Format: | Arbeit |
| Sprache: | Englisch |
| Veröffentlicht: |
2009
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| Schlagworte: | |
| Online-Zugang: | PDF-Volltext |
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| Zusammenfassung: | Any cooperation that profits from relation-specific investments suf-
fers 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, individ-
ual 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. |
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| ISSN: | 1867-3678 |
| DOI: | 10.17192/es2023.0223 |