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Paper No' TE/1998/362: | Full paper
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Keywords: Ex-ante contractual costs; hold-up problem; Coase theorem; contracts over contracts; incomplete contracts.
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This Paper is published under the following series: Theoretical Economics
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Abstract: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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