Contractual signaling, relationship-specific investment and exclusive agreements

Research output: Contribution to journalArticle

4 Citations (Scopus)

Abstract

I analyze a model of hold-up with asymmetric information at the contracting stage. The asymmetry of information concerns the value of trade with external parties. I show that contractual signaling and efficiency of investment can conflict if only quantity is contractible. This conflict generates inefficient equilibria in terms of investment. Contracting on exclusivity in addition to quantity resolves the conflict and consequently eliminates the inefficiency of investment.

Original languageEnglish
Pages (from-to)19-33
Number of pages15
JournalGames And Economic Behavior
Volume87
DOIs
Publication statusPublished - 2014

Keywords

  • Asymmetric information
  • Exclusivity
  • Relationship-specific investment

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