Investments and the holdup problem in a matching market

Helmut Bester

No 2009/7, Discussion Papers from Free University Berlin, School of Business & Economics

Abstract: This paper studies investment incentives in the steady state of a dynamic bilateral matching market. Because of search frictions, both parties in a match are partially locked-in when they bargain over the joint surplus from their sunk investments. The associated holdup problem depends on market conditions and is more important for the long side of the market. In the case of investments in homogenous capital only the agents on the short side acquire ownership of capital. There is always underinvestment on both sides of the market. But when market frictions become negligible, the equilibrium investment levels tend towards the first-best.

Keywords: Holdup Problem; Matching Market; Investments (search for similar items in EconPapers)
JEL-codes: C78 D23 D92 (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-dge and nep-gth
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Investments and the holdup problem in a matching market (2013)
Working Paper: Investments and the Holdup Problem in a Matching Market (2009)
Working Paper: Investments and the Holdup Problem in a Matching Market (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:fubsbe:20097

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