Glossary of economics research
Results of search for hold-up problem follow:
hold-up problem:
One of a certain class of contracting problems.
Imagine a situation where there is profit to be made if agents A and B work
together, so they consider an agreement to do so after A buys the necessary
equipment. The hold-up problem (in this context) is A might not be willing to
take that agreement, even though the outcome would be Pareto efficient,
because after A has made that investment, B would have the power might decide
to demand a larger share of the profits than before, since A is now deeply
invested in the project but B is not, so B has some bargaining power that
wasn't there before the investment. B could demand all of the profits, in
fact, since A's alternative is to lose the investment entirely.
Other hold-up problems are analogous to this one.
Contexts: theory of the firm; corporate finance
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