Why 'Hold-Ups' Occur: The Self-Enforcing Range of Contractual Relationships

Economic Inquiry, Vol. 34, pp. 444-463 (July 1996)

20 Pages Posted: 27 Sep 2014

See all articles by Benjamin Klein

Benjamin Klein

University of California, Los Angeles (UCLA) - Department of Economics; Compass Lexecon

Date Written: July 1, 1996

Abstract

Court enforcement and private enforcement are not alternative contract enforcement mechanisms, but are used jointly by transactors to define the self-enforcing range of a contractual relationship. Within this framework contract terms economize on the limited amounts of private enforcement capital possessed by transactors, either by directly controlling transactor behavior or by shifting private enforcement capital between transactors to coincide with likely future market conditions. Hold-ups occur when market conditions change sufficiently to place the relationship outside the self-enforcing range. This probabilistic view of hold-ups is contrasted with opportunism more generally and with moral hazard behavior.

JEL Classification: L14

Suggested Citation

Klein, Benjamin, Why 'Hold-Ups' Occur: The Self-Enforcing Range of Contractual Relationships (July 1, 1996). Economic Inquiry, Vol. 34, pp. 444-463 (July 1996). Available at SSRN: https://ssrn.com/abstract=1872212

Benjamin Klein (Contact Author)

University of California, Los Angeles (UCLA) - Department of Economics ( email )

1999 Avenue of the Stars
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HOME PAGE: http://www.econ.ucla.edu/people/Faculty/Klein.html

Compass Lexecon ( email )

1999 Avenue of the Stars
Suite 1150
Los Angeles, CA 90067-4628
United States
310-728-2025 (Phone)
310-728-2070 (Fax)

HOME PAGE: http://www.compasslexecon.com/professionals/bio?id=152

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