Arbeitspapier
Organizational structure and the hold-up problem
In this note, I consider a setting in which an agent can exert costly unobservable effort towards two activities and is, a priori, uncertain about its ability to perform them. A (non-contractible) ability enhancing investment can be performed. The lack of commitment from a Principal concerned with (informational) rent extraction, and who is in control of both activities, induces the standard underinvestment outcome of Hold-Up problems. It is then shown that, if the two activities are assigned to two different Principals, ex-post incentives will be more powerful generating, from an ex-ante perspective, higher incentives for ability enhancing investment. The combination of higher ex-ante investments and expost incentives produces an outcome that is superior than a single Principal’s outcome in terms of efficiency. This suggests that organizational structure, through its influence on the design of incentives over contractible variables, can play a key role is solving Hold-Up problems.
- Language
-
Englisch
- Bibliographic citation
-
Series: Texto para discussão ; No. 521
- Classification
-
Wirtschaft
- Event
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Geistige Schöpfung
- (who)
-
Carrasco, Vinicius
- Event
-
Veröffentlichung
- (who)
-
Pontifícia Universidade Católica do Rio de Janeiro (PUC-Rio), Departamento de Economia
- (where)
-
Rio de Janeiro
- (when)
-
2006
- Handle
- Last update
-
10.03.2025, 11:42 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Carrasco, Vinicius
- Pontifícia Universidade Católica do Rio de Janeiro (PUC-Rio), Departamento de Economia
Time of origin
- 2006
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