Hold‐Up: With a Vengeance

13 Pages Posted: 30 Nov 2012

See all articles by Martin Dufwenberg

Martin Dufwenberg

University of Arizona - Department of Economics

Alec Smith

California Institute of Technology

Matt Van Essen

University of Alabama

Date Written: January 2013

Abstract

When contracts are incomplete or unenforceable, inefficient levels of investment may occur because of hold‐up. If individuals care for negative reciprocity, these problems may be reduced, as revenge becomes a credible threat. However, negative reciprocity has this effect only when the investor holds the rights of control of the investment proceeds. We explore this issue analytically, deriving predictions for hold‐up games which differ as regards assignment of rights of control. We also test and support these predictions in an experiment.

JEL Classification: C72, C92, D23, L14

Suggested Citation

Dufwenberg, Martin and Smith, Alec and Van Essen, Matt, Hold‐Up: With a Vengeance (January 2013). Economic Inquiry, Vol. 51, Issue 1, pp. 896-908, 2013. Available at SSRN: https://ssrn.com/abstract=2182960 or http://dx.doi.org/10.1111/j.1465-7295.2010.00366.x

Martin Dufwenberg (Contact Author)

University of Arizona - Department of Economics ( email )

McClelland Hall
Tucson, AZ 85721-0108
United States

Alec Smith

California Institute of Technology ( email )

Pasadena, CA 91125
United States

Matt Van Essen

University of Alabama ( email )

101 Paul W. Bryant Dr.
Box 870382
Tuscaloosa, AL 35487
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
1
Abstract Views
252
PlumX Metrics