Ex Post Destruction in the Hold-up Problem

Ex Post Destruction in the Hold-up Problem

We investigate whether or not ex post destruction can solve the hold-up problem. After clarifying the difference between ex post destruction and nontrade when negotiation breaks down, we show that the option of ex post destruction is not sufficient to enhance ex ante efficiency. In particular, only...

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Bibliographic Details
Main Authors: WANG, Huan, ZHANG, Juyuan, ZHANG, Yi
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2013
Subjects:
Destruction
Hold-up
Underinvestment
Incomplete Information
Behavioral Economics
Finance
Online Access:https://ink.library.smu.edu.sg/soe_research/1487
https://ink.library.smu.edu.sg/context/soe_research/article/2486/viewcontent/Holdup_destruction.pdf
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Institution: Singapore Management University
Language: English
Description
Summary:We investigate whether or not ex post destruction can solve the hold-up problem. After clarifying the difference between ex post destruction and nontrade when negotiation breaks down, we show that the option of ex post destruction is not sufficient to enhance ex ante efficiency. In particular, only if the information about the spitefulness of the supplier is coarse enough, will the option of ex post destruction alleviate the inefficiency of underinvestment caused by the hold-up problem.

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