Finite Horizon Holdup and How to Cross the River

Simon Martin and Karl Schlag

VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking from Verein für Socialpolitik / German Economic Association

Abstract: When should one pay for delivery of a good if there are no institutions? We suggest to break up the transaction into many small rounds of investment and payment. We show that the efficient investment can be implemented in an epsilon-subgame perfect equilibrium for any given epsilon if the invest technology is concave and there are sufficiently many rounds of investment. This shows that the holdup problem that emerges from backwards induction in a finite horizon is not robust.

JEL-codes: C72 D23 L14 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-cta
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Working Paper: Finite Horizon Holdup and How to Cross the River (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc17:168136

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