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Halac, Marina (2015) Investing in a relationship. The RAND Journal of Economics, 46 (1). pp. 165-185. doi:10.1111/1756-2171.12080 ISSN 0741-6261.
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Official URL: http://dx.doi.org/10.1111/1756-2171.12080
Abstract
A principal can make an investment anticipating a repeated relationship with an agent, but the agent may appropriate the returns through ex post bargaining. I study how this holdup problem and efficiency depend on the contracting environment. When investment returns are observable, informal contracts ex post can be more efficient than formal contracts, as they induce higher investment ex ante: the principal invests not only to generate direct returns, but also to improve relational incentives. Unobservability of returns increases the principal's ability to appropriate the returns but reduces her ability to improve incentives. The optimal information structure depends on bargaining power.
Item Type: | Journal Article | ||||||
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Divisions: | Faculty of Social Sciences > Economics | ||||||
Journal or Publication Title: | The RAND Journal of Economics | ||||||
Publisher: | Wiley-Blackwell Publishing, Inc. | ||||||
ISSN: | 0741-6261 | ||||||
Official Date: | 2015 | ||||||
Dates: |
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Volume: | 46 | ||||||
Number: | 1 | ||||||
Page Range: | pp. 165-185 | ||||||
DOI: | 10.1111/1756-2171.12080 | ||||||
Status: | Peer Reviewed | ||||||
Publication Status: | Published | ||||||
Access rights to Published version: | Restricted or Subscription Access |
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