Holdups, Standard Breach Remedies, and Optimal Investment

  title={Holdups, Standard Breach Remedies, and Optimal Investment},
  author={Aaron Edlin and Stefan Reichelstein},
  journal={Remedies eJournal},
We consider a bilateral trading problem in which one or both parties makes relationship-specific investments before trade. Without adequate contractual protection, the prospect of later holdups discourages investment. We postulate that the parties can sign noncontingent contracts prior to investing, and can freely renegotiate them after uncertainty about the desirability of trade is resolved. We find that such contracts can induce one party to invest efficiently when either a breach remedy of… 

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