IDEAS home Printed from https://ideas.repec.org/a/bpj/bejtec/vadvances.1y2001i1n2.html
   My bibliography  Save this article

Efficient Non-Contractible Investments in Finite Economies

Author

Listed:
  • Cole Harold Linh

    (Minneapolis Federal Reserve Bank, colehl@sas.upenn.edu)

  • Mailath George J.

    (University of Pennsylvania, gmailath@econ.sas.upenn.edu)

  • Postlewaite Andrew

    (University of Pennsylvania, apostlew@econ.sas.upenn.edu)

Abstract

Individuals making investments typically do not have incentives to invest efficiently when they cannot contract prior to their decisions. When they bargain over the surplus generated by their investments, they will usually not obtain the full fruits of the investment. Intuitively, this hold-up problem should be ameliorated if, in the bargaining stage, each agent has alternatives to the partner he is bargaining with. We characterize the matching and division of surplus in finite economies for any initial investment decisions. We provide conditions on those decisions that guarantee that each agent will capture the change in the aggregate social surplus that results from any investment change he makes. We further show that for any given problem, there exists a bargaining rule by which pairs split their surplus that will support efficient investment choices in equilibrium. We also show, however, that overinvestment or underinvestment can occur for natural bargaining rules.

Suggested Citation

  • Cole Harold Linh & Mailath George J. & Postlewaite Andrew, 2001. "Efficient Non-Contractible Investments in Finite Economies," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 1(1), pages 1-34, March.
    • Handle: RePEc:bpj:bejtec:v:advances.1:y:2001:i:1:n:2
    DOI: 10.2202/1534-5963.1005
    as

    Download full text from publisher

    File URL: https://doi.org/10.2202/1534-5963.1005
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.2202/1534-5963.1005?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wickelgren, Abraham L., 2004. "Innovation, market structure and the holdup problem: investment incentives and coordination," International Journal of Industrial Organization, Elsevier, vol. 22(5), pages 693-713, May.
    2. Cole, Harold L. & Mailath, George J. & Postlewaite, Andrew, 2001. "Efficient Non-Contractible Investments in Large Economies," Journal of Economic Theory, Elsevier, vol. 101(2), pages 333-373, December.
    3. Matthew J. Baker & Joyce P. Jacobsen, 2007. "Marriage, Specialization, and the Gender Division of Labor," Journal of Labor Economics, University of Chicago Press, vol. 25(4), pages 763-793.
    4. Dizdar, Deniz & Moldovanu, Benny & Szech, Nora, 2019. "The feedback effect in two-sided markets with bilateral investments," Journal of Economic Theory, Elsevier, vol. 182(C), pages 106-142.
    5. George J. Mailath & Volker Nocke & Andrew Postlewaite, 2004. "Business Strategy, Human Capital, and Managerial Incentives," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(4), pages 617-633, December.
    6. Nei, Stephen & Pakzad-Hurson, Bobak, 2021. "Strategic disaggregation in matching markets," Journal of Economic Theory, Elsevier, vol. 197(C).
    7. Casari, Marco & Lisciandra, Maurizio, 2014. "Gender Discrimination and Common Property Resources: a Model," MPRA Paper 57712, University Library of Munich, Germany.
    8. Casari, Marco & Lisciandra, Maurizio, 2015. "Gender Discrimination and Common Property Resources," IZA Discussion Papers 9601, Institute of Labor Economics (IZA).
    9. Guillem Roig, 2022. "The value of investment in nonexclusive contracts," Economic Inquiry, Western Economic Association International, vol. 60(3), pages 1018-1037, July.
    10. Nosaka, Hiromi, 2007. "Specialization and competition in marriage models," Journal of Economic Behavior & Organization, Elsevier, vol. 63(1), pages 104-119, May.
    11. Tomoeda, Kentaro, 2019. "Efficient investments in the implementation problem," Journal of Economic Theory, Elsevier, vol. 182(C), pages 247-278.
    12. Bjerk, David, 2009. "Beauty vs. earnings: Gender differences in earnings and priorities over spousal characteristics in a matching model," Journal of Economic Behavior & Organization, Elsevier, vol. 69(3), pages 248-259, March.
    13. Hatfield, John William & Kojima, Fuhito & Narita, Yusuke, 2016. "Improving schools through school choice: A market design approach," Journal of Economic Theory, Elsevier, vol. 166(C), pages 186-211.

    More about this item

    Keywords

    Contracting; Matching;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:bejtec:v:advances.1:y:2001:i:1:n:2. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyter.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.