Reconciliating Relational Contracting and Hold-Up: A Model of Repeated Negotiations

45 Pages Posted: 3 Feb 2013 Last revised: 11 Mar 2020

Multiple version iconThere are 2 versions of this paper

Date Written: March 11, 2020

Abstract

Game theoretic analysis of relational contracts typically studies Pareto-optimal equilibria of infinitely repeated games. We illustrate with several examples how this equilibrium selection rules out very intuitive hold-up concerns. This becomes apparent only when moving away from the stationary environment of repeated games to more general discounted stochastic games. The key problem is that Pareto-optimal equilibria, even if satisfying renegotiation-proofness, do not properly reflect plausible concerns of how today's actions affect future bargaining positions within the relationship. We propose and characterize an alternative equilibrium selection based on the notion that continuation play is repeatedly newly negotiated in a relationship. We illustrate how the concept naturally combines the trade-offs from relational contracting and hold-up concerns.

Keywords: relational contracting, hold-up, negotiations, stochastic games

JEL Classification: C73, C78, D23, L14

Suggested Citation

Goldlücke, Susanne and Kranz, Sebastian, Reconciliating Relational Contracting and Hold-Up: A Model of Repeated Negotiations (March 11, 2020). Available at SSRN: https://ssrn.com/abstract=2210603 or http://dx.doi.org/10.2139/ssrn.2210603

Susanne Goldlücke (Contact Author)

University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

Sebastian Kranz

Ulm University ( email )

Albert-Einstein-Alee 11
Ulm, D-89081
Germany

HOME PAGE: http://www.uni-ulm.de/mawi/mawi-wiwi/mitarbeiter/skranz.html

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