Anderlini, Luca and Felli, Leonardo (1998) Costly coasian contracts. TE/98/362. Suntory and Toyota International Centres for Economics and Related Disciplines, London School of Economics and Political Science, London, UK.
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We identify and investigate the basic ‘hold-up problem’ which arises whenever each party to a contract has to pay some ex-ante cost for the contract to become feasible. We then proceed to show that, under plausible circumstances, a ‘contractual solution’ to this hold-up problem is not available. This is because a contractual solution to the hold-up problem typically entails writing a ‘contract over a contract’ which generates a fresh set of ex-ante costs, and hence is associated with a new hold-up problem.
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