Can Contracts Solve the Hold-Up Problem? Experimental Evidence

  title={Can Contracts Solve the Hold-Up Problem? Experimental Evidence},
  author={Eva I. Hoppe and Patrick W. Schmitz},
  journal={Behavioral \& Experimental Economics eJournal},
In the contract-theoretic literature, there is a vital debate about whether contracts can mitigate the hold-up problem, in particular when renegotiation cannot be prevented. Ultimately, this question has to be answered empirically. As a first step, we have conducted a laboratory experiment with 960 participants. We consider investments that directly benefit the non-investing party. While according to standard theory, contracting would be useless if renegotiation cannot be ruled out, we find… 
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