Simple Contracts, Renegotiation Under Asymmetric Information, and the Hold-Up Problem

28 Pages Posted: 6 Jun 2001

See all articles by Patrick W. Schmitz

Patrick W. Schmitz

University of Cologne; Centre for Economic Policy Research (CEPR)

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Abstract

In this article it is demonstrated that voluntary bargaining over a collective decision under asymmetric information may well lead to ex post efficiency if the default decision is non-trivial. It is argued that the default decision may be interpreted as a simple contract that the parties have written ex ante. This result is used in order to show that simple unconditional contracts which are renegotiated may allow the hold-up problem to be solved, even if the parties' valuations are private information.

Keywords: Contract theory, private information, hold-up problem

Suggested Citation

Schmitz, Patrick W., Simple Contracts, Renegotiation Under Asymmetric Information, and the Hold-Up Problem. Available at SSRN: https://ssrn.com/abstract=271036 or http://dx.doi.org/10.2139/ssrn.271036

Patrick W. Schmitz (Contact Author)

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

HOME PAGE: http://schmitz.uni-koeln.de/index.php?s=mitarbeiter&t=schmitz

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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