Holdup and the Evolution of Bargaining Conventions

25 Pages Posted: 28 Jul 2001  

Herbert Dawid

Bielefeld University - Department of Business Administration and Economics; Center for Mathematical Economics

W. Bentley MacLeod

Columbia University - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: 2001

Abstract

As Posner (1997) has observed, when individuals in a relationship can commit to imposing costs upon each other then efficient behavior in the absence of law is possible. The question is whether efficient norms of behavior evolve endogenously in a population. We show that in a standard hold up model in which both parties make relationship specific investments the long run outcome of a stochastic adaptation process similar to Young's (1993) 'adaptive play' does not in general correspond to the efficient equilibria. As Grossman and Hart (1986) observe, institutions, such as firms, may be needed to improve the allocation of resources.

Keywords: Hold up problem, bargaining, evolution

JEL Classification: C78, L41

Suggested Citation

Dawid, Herbert and MacLeod, W. Bentley, Holdup and the Evolution of Bargaining Conventions (2001). USC CLEO Research Paper No. C01-2; and USC Law and Economics Research Paper No. 01-14. Available at SSRN: https://ssrn.com/abstract=277910 or http://dx.doi.org/10.2139/ssrn.277910

Herbert Dawid

Bielefeld University - Department of Business Administration and Economics ( email )

P.O. Box 100131
D-33501 Bielefeld, NRW 33501
Germany
+49-521-1064843 (Phone)
+49-521-1062994 (Fax)

Center for Mathematical Economics ( email )

Postfach 10 01 31
Bielefeld, D-33501
Germany

William Bentley MacLeod (Contact Author)

Columbia University - Department of Economics ( email )

420 W. 118th Street
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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