Hold-up, Asset Ownership, and Reference Points


Hart, Oliver. 2009. “Hold-up, Asset Ownership, and Reference Points.” Quarterly Journal of Economics 124 (1): 267-300.
QJE-2009185 KB


We study two parties who desire a smooth trading relationship under condi- tions of value and cost uncertainty. A contract fixing price works well in normal times because there is nothing to argue about. However, when value or cost is unusually high or low, one party will deviate from the contract and hold up the other party, causing deadweight losses as parties withhold cooperation. We show that allocating asset ownership and indexing contracts can reduce the incentives to engage in hold-up. In contrast to much of the literature, the driving force in our model is payoff uncertainty, rather than noncontractible investments.

Last updated on 03/18/2013