The hold-up problem, innovations, and limited liability

An inventor can invest research effort to come up with an innovation. Once an innovation is made, a contract is negotiated and unobservable effort must be exerted to develop a product. In the absence of liability constraints, the inventor’s investment incentives are increasing in his bargaining power. Yet, given limited liability, overinvestments may occur and the inventor’s investment incentives may be decreasing in his bargaining power.

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Year of publication:	2012
Authors:	Schmitz, Patrick W.
Published in:	Economics Letters. - Elsevier, ISSN 0165-1765. - Vol. 117.2012, 3, p. 841-843
Publisher:	Elsevier
Subject:	Hold-up problem \| Incomplete contracts \| Research and development

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Type of publication:	Article
Classification:	D86 - Economics of Contract: Theory ; L23 - Organization of Production ; O31 - Innovation and Invention: Processes and Incentives
Source:	RePEc - Research Papers in Economics

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