The hold-up problem, innovations, and limited liability

Patrick Schmitz

Economics Letters, 2012, vol. 117, issue 3, 841-843

Abstract: An inventor can invest research effort to come up with an innovation. Once an innovation is made, a contract is negotiated and unobservable effort must be exerted to develop a product. In the absence of liability constraints, the inventor’s investment incentives are increasing in his bargaining power. Yet, given limited liability, overinvestments may occur and the inventor’s investment incentives may be decreasing in his bargaining power.

Keywords: Hold-up problem; Incomplete contracts; Research and development (search for similar items in EconPapers)
JEL-codes: D86 L23 O31 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (4)

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Working Paper: The hold-up problem, innovations, and limited liability (2012)
Working Paper: The hold-up problem, innovations, and limited liability (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:117:y:2012:i:3:p:841-843

DOI: 10.1016/j.econlet.2012.08.046

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