Government and the Reverse-Holdup Problem

9 Pages Posted: 19 Dec 2003

See all articles by Abraham L. Wickelgren

Abraham L. Wickelgren

University of Texas at Austin - School of Law; University of Texas at Austin - Center for Law, Business, and Economics

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Date Written: November 2003

Abstract

When the government bargains with a private firm, the firm cares about only its own profits, but the firm's profits may also enter into the government's utility function. As a result, the government will not bargain as aggressively for a low price. This can lead the government to "over pay" for quality. In contrast to the standard holdup problem, this reverse-holdup problem can give the firm an incentive to overinvest in non-contractible quality.

Keywords: holdup, non-contractible investment, government procurement

JEL Classification: D20, H00

Suggested Citation

Wickelgren, Abraham L., Government and the Reverse-Holdup Problem (November 2003). Available at SSRN: https://ssrn.com/abstract=478043 or http://dx.doi.org/10.2139/ssrn.478043

Abraham L. Wickelgren (Contact Author)

University of Texas at Austin - School of Law ( email )

727 East Dean Keeton Street
Austin, TX 78705
United States

University of Texas at Austin - Center for Law, Business, and Economics

Austin, TX 78712
United States

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