On contractual solutions to hold-up problems with quality uncertainty and unobservable investments

MPRA Paper from University Library of Munich, Germany

Abstract: A seller and a buyer can write a contract. After that, the seller produces a good. She can influence the expected quality of the good by making unobservable investments. Only the seller learns the realized quality. Finally, trade can occur. It is always ex post efficient to trade. Yet, it may be impossible to achieve the first best, even though the risk-neutral parties are symmetrically informed at the contracting stage and complete contracts can be written. The second best is characterized by distortions that are reminiscent of adverse selection models (i.e., models with precontractual private information but without hidden actions).

Keywords: Hold-up problem; hidden action; hidden information; common values (search for similar items in EconPapers)
JEL-codes: D23 D82 D86 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-cta
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Contractual solutions to hold-up problems with quality uncertainty and unobservable investments (2010)
Working Paper: Contractual solutions to hold-up problems with quality uncertainty and unobservable investments (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:23157

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