Bargaining under Incomplete Information, Fairness, and the Hold-Up Problem

Arbeitspapier

In the hold-up problem incomplete contracts cause the proceeds of relation-specific investments to be allocated by ex-post bargaining. The present paper investigates the efficiency of incomplete contracts if individuals have heterogeneous preferences implying heterogeneous bargaining behavior and - equally important - preferences are private information. As the sunk investment costs can thus potentially signal preferences, they can influence beliefs and consequently bargaining outcomes. The necessities of signalling are shown to generate very strong investment incentives. These incentives are based on the desire not to reveal information that is unfavorable in the ensuing bargaining. After finding all perfect Bayesian equilibria in pure strategies, the paper derives the necessary and sufficient conditions under which it is optimal to invest and trade efficiently.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SFB/TR 15 Discussion Paper ; No. 57

Classification and Topics

• Classification: Wirtschaft ; Game Theory and Bargaining Theory: General ; Organizational Behavior; Transaction Costs; Property Rights ; Equity, Justice, Inequality, and Other Normative Criteria and Measurement ; Asymmetric and Private Information; Mechanism Design ; Compensation Packages; Payment Methods ; Contract Law ; Firm Organization and Market Structure
• Subject: Incomplete Contracts ; Hold-Up ; Fairness ; Bargaining under Incomplete Information ; Signalling

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): von Siemens, Ferdinand
• Event: Veröffentlichung
• (who): Sonderforschungsbereich/Transregio 15 - Governance and the Efficiency of Economic Systems (GESY)
• (where): München
• (when): 2005

Further information

• DOI: doi:10.5282/ubm/epub.13493
• Handle: http://hdl.handle.net/10419/94183
• URN: urn:nbn:de:bvb:19-epub-13493-1
• Last update: 10.03.2025, 11:43 AM CET