Contractual signalling, relationship-specific investment and exclusive agreements

Luis Vasconcelos ()

Nova SBE Working Paper Series from Universidade Nova de Lisboa, Nova School of Business and Economics

Abstract: I analyze a simple model of hold-up with asymmetric information at the contracting stage. I show that contractual signalling and e ciency of investment can conflict if only quantity is contractible. This is because contracted quantity encourages investment in the relationship but also signals information. This con?ict generates ine cient equilibria in terms of investment. Contracting on exclusivity in addition to quantity resolves the con?ict (and consequently eliminates the ine ciency of investment) when the asymmetry of information concerns the value of trade with external parties. While exclusivity also signals information, unlike quantity it does not directly a ect relationship-speci?c investment.

Pages: 51 pages
Date: 2006
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Contractual signaling, relationship-specific investment and exclusive agreements (2014)
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