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A solution to the hold-up problem involving gradual investment

Pitchford, Rohan; Snyder, Christopher

Description

We consider a setting in which the buyer's ability to hold up a seller's investment is so severe that there is no investment in equilibrium of the static game typically analyzed. We show that there exists an equilibrium of a related dynamic game generating positive investment. The seller makes a sequence of gradually smaller investments, each repaid by the buyer under the threat of losing further seller investment. As modeled frictions converge to zero, the equilibrium outcome converges to the...[Show more]

CollectionsANU Research Publications
Date published: 2004
Type: Journal article
URI: http://hdl.handle.net/1885/78728
Source: Journal of Economic Theory
DOI: 10.1016/S0022-0531(03)00120-0

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