Does Contract Enforcement Mitigate Hold Up?

Review of Corporate Finance Studies, 7(2), September 2018, pp. 245–275.

46 Pages Posted: 29 Mar 2018 Last revised: 10 Mar 2020

See all articles by J. Anthony Cookson

J. Anthony Cookson

University of Colorado at Boulder - Leeds School of Business

Date Written: March 29, 2018

Abstract

This paper provides novel evidence that stronger contract enforcement mitigates hold up in business investment decisions using stark, externally imposed variation in contract enforcement across Native American reservations. My tests focus on the golf course industry, which involves a high degree of sunk costs and long investment horizons, and is thus, naturally subject to the classical hold up problem. I find that state courts, which provide stronger contract enforcement than tribal courts, lead to at least 27% more golf courses, with greater effects in areas with greater natural amenities. These findings suggest that courts play an important role in facilitating the oft-discussed contractual solutions to the hold up problem.

Keywords: Hold-Up, Contract Enforcement, Investment, Native American Reservations

JEL Classification: G31, K40, P48

Suggested Citation

Cookson, J. Anthony, Does Contract Enforcement Mitigate Hold Up? (March 29, 2018). Review of Corporate Finance Studies, 7(2), September 2018, pp. 245–275., Available at SSRN: https://ssrn.com/abstract=3152459 or http://dx.doi.org/10.2139/ssrn.3152459

J. Anthony Cookson (Contact Author)

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
79
Abstract Views
1,081
Rank
623,906
PlumX Metrics