English, Article, Journal or magazine article edition: Strategic Defection in Bilateral Trade Christoph Lülfesmann

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Bookmark: http://trove.nla.gov.au/version/52428
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Strategic Defection in Bilateral Trade
Author
  • Christoph Lülfesmann
Physical Description
  • preprint
Notes
  • The paper studies a generic bilateral trade model with relationship-specific investments. Only the seller invests, and subsequent trade becomes inefficient if his investments are too low. We show that the seller may defect strategically under a fixed-price contract even though he attains any arbitrary surplus when expending the (second-best) investment. In this case, no general mechanism facilitates trade and the parties should not start their relationship. Also, the defection problem may be more severe when the parties trade after the buyer's valuation has been disclosed, as compared to a situation where the parties have to complete trade under uncertainty.
  • Bilateral Trade, Hold-Up, Specific Investments, Incomplete Contracts
  • RePEc:bon:bonedp:bgse4_2001
Language
  • English
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