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Reconciliating Relational Contracting and Hold-up: A Model of Repeated Negotiations

Goldl�cke, Susanne and Sebastian Kranz

No 12540, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We propose a unified framework to study relational contracting and hold-up problems in infinite horizon stochastic games with monetary transfers. Starting from the observation that the common formulation of relational contracts as Pareto-optimal public perfect equilibria is in stark contrast to fundamental assumptions of hold-up models, we develop a model in which relational contracts are repeatedly negotiated in a relationship. New negotiations take place with positive probability each period and treat previous informal agreements as bygones. The concept nests relational contracting and hold-up models as opposite corner cases. Allowing for intermediate cases sheds light on many plausible trade-offs that do not arise in these corner cases.

Keywords: hold-up; negotiations; relational contracting; Stochastic Games (search for similar items in EconPapers)
JEL-codes: C73 C78 D23 L14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth and nep-mic
Date: 2017-12
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