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An Elementary Approach to the Hold-Up Problem with Renegotiation

Author

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  • Schweizer, Urs

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.

Suggested Citation

  • Schweizer, Urs, 2000. "An Elementary Approach to the Hold-Up Problem with Renegotiation," Bonn Econ Discussion Papers 15/2000, University of Bonn, Bonn Graduate School of Economics (BGSE).
    • Handle: RePEc:zbw:bonedp:152000
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    File URL: https://www.econstor.eu/bitstream/10419/78433/1/bgse15_2000.pdf
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    Cited by:

    1. Andreas Roider, 2006. "Delegation of Authority as an Optimal (In)Complete Contract," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 162(3), pages 391-411, September.

    More about this item

    Keywords

    hold-up problem; renegotiation; mechanism design; message contingent contracts;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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