Noncontractible Investments and Reference Points

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Noncontractible Investments and Reference Points

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Title: Noncontractible Investments and Reference Points
Author: Hart, Oliver D.
Citation: Hart, Oliver. 2013. “Noncontractible Investments and Reference Points.” Games 4 (3) (August 14): 437–456. doi:10.3390/g4030437. http://dx.doi.org/10.3390/g4030437.
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Abstract: We analyze noncontractible investments in a model with shading. A seller can make an investment that affects a buyer’s value. The parties have outside options that depend on asset ownership. When shading is not possible and there is no contract renegotiation, an optimum can be achieved by giving the seller the right to make a take-it-or-leave-it offer. However, with shading, such a contract creates deadweight losses. We show that an optimal contract will limit the seller’s offers, and possibly create ex post inefficiency. Asset ownership can improve matters even if revelation mechanisms are allowed.
Published Version: doi:10.3390/g4030437
Terms of Use: This article is made available under the terms and conditions applicable to Other Posted Material, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#LAA
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:29058539
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