This paper analyses the investment incentives given by contingent ownership structures that are prevalent in joint ventures. We consider a variation of the standard hold-up problem where two parties make relationship-specific investments sequentially in order to generate a joint surplus in the...

A political constitution is like an incomplete contract: it spells out a procedure for making decisions and for delegating power, without specifying the contents of those decisions. This creates a problem: the appointed policymaker could use this power for his own benefit against the interests...

We identify and investigate the basic `hold-up' problem which arises whenever each party to a contingent contract has to pay some ex-ante cost for the contract to become feasible. We then proceed to show that, under plausible circumstances, a `contractual solution' to this hold-up problem is not...

This paper suggests a reason, other than asymmetric information, why agency contracts are not explicitly contingent on the agent's performance or actions. Two ingredients are essential to this reason. The first is the written form that contracts are required to take to be enforceable. The second...

In a two-period model where an investment project is funded with standard debt, the probability distribution of final cash flow is determined, at the interim date, by an unverifiable state of nature together with a choice by the controlling party (entrepreneur or creditor). With a control...

In this paper we study experimentally four remedies to overcome inefficiencies that arise from the incompleteness of contracts. These remedies are reciprocity, repeated game effects, social embeddedness, and incentive contracts. In our baseline treatment we find that reciprocity is a powerful...

This paper deals with price regulation of a monopolistic distribution grid which sells a license to some retailer. The regulator aims at attaining efficient sale of the license and efficient relationship-specific investments of the agents. The first best can be attained by a sequential...