Ex Post Destruction in the Hold-up Problem

Author

Huan WANG, New York University
Juyuan ZHANG, Southwestern University of Finance and Economics
Yi ZHANG, Singapore Management UniversityFollow

Publication Type

Working Paper

Version

publishedVersion

Publication Date

1-2013

Abstract

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.

Keywords

Destruction, Hold-up, Underinvestment, Incomplete Information

Discipline

Behavioral Economics | Finance

Research Areas

Applied Microeconomics

First Page

1

Last Page

13

Citation

WANG, Huan; ZHANG, Juyuan; and ZHANG, Yi. Ex Post Destruction in the Hold-up Problem. (2013). 1-13.
Available at: https://ink.library.smu.edu.sg/soe_research/1487

Copyright Owner and License

Authors

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.