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Relational Contracting, Repeated Negotiations, and Hold-Up

Sebastian Kranz ()

Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order from Verein für Socialpolitik / German Economic Association

Abstract: We propose a unified framework to study relational contracting and hold-up problems in infinite horizon stochastic games. We first illustrate that with respect to long run decisions, 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 newly negotiated during relationships. Negotiations take place with positive probability and cause bygones to be bygones. Traditional relational contracting and hold-up formulations are nested as opposite corner cases. Allowing for intermediate cases yields very intuitive results and sheds light on many plausible trade-offs that do not arise in these corner cases. We establish a general existence result and a tractable characterization for stochastic games in which money can be transferred.

JEL-codes: C73 C78 L14 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-gth and nep-mic
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https://www.econstor.eu/bitstream/10419/80047/1/VfS_2013_pid_464.pdf (application/pdf)

Related works:
Working Paper: Relational Contracting, Repeated Negotiations, and Hold-Up (2013) Downloads
Working Paper: Relational Contracting, Repeated Negotiations, and Hold-Up (2013) Downloads
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