If You are Offered the Right of First Refusal, Should You Accept? An Investigation of Contract Design

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If You are Offered the Right of First Refusal, Should You Accept? An Investigation of Contract Design

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Title: If You are Offered the Right of First Refusal, Should You Accept? An Investigation of Contract Design
Author: Grosskopf, Brit; Roth, Alvin E.

Note: Order does not necessarily reflect citation order of authors.

Citation: Grosskopf, Brit, and Alvin E. Roth. 2009. If you are offered the right of first refusal, should you accept? An investigation of contract design. Games and Economic Behavior, Special Issue in Honor of Martin Shubik 65(1): 176-204.
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Abstract: Rights of first refusal are contract clauses intended to provide the holder of a license or lease with some protection when the contract ends. The simplest version gives the right holder the ability to act after potential competitors. However, another common implementation requires the right holder to accept or reject some offers before potential competitors are given the same offer, and, if the right holder rejects the initial offer, allows the right to be exercised affirmatively only if competitors are subsequently offered a better deal (e.g. a lower price). We explore, theoretically and experimentally, the impact this latter form of right of first refusal can have on the outcome of negotiation. Counterintuitively, this “right” of first refusal can be disadvantageous to its holder. This suggests that applied contract design may benefit from the same kind of attention to detail that has begun to be given to practical market design.
Published Version: doi:10.1016/j.geb.2007.10.013
Terms of Use: This article is made available under the terms and conditions applicable to Open Access Policy Articles, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#OAP
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:4261988

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  • FAS Scholarly Articles [7106]
    Peer reviewed scholarly articles from the Faculty of Arts and Sciences of Harvard University
 
 

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