Finite Horizon Holdup and How to Cross the River

Simon Martin and Karl Schlag

Vienna Economics Papers from University of Vienna, Department of Economics

Abstract: When should one pay the ferryman? When should one pay for delivery of a good if there are no institutions or these are too costly to enforce contracts? We suggest to break up the transaction into many small rounds of investment and payment. We show that the e?cient investment can be implemented in an e-subgame perfect equilibrium for any given e if there are su?ciently many rounds of investment. This shows that when the horizon is ?nite, the holdup problem that emerges from backwards induction is not robust. Equilibria with stable and robust strategies require more periods.

JEL-codes: C72 D23 L14 (search for similar items in EconPapers)
Date: 2017-09
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Working Paper: Finite Horizon Holdup and How to Cross the River (2017)
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