TY  - JOUR
AU  - Hart,Oliver
TI  - Hold-up, Asset Ownership, and Reference Points
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13540
PY  - 2007
Y2  - October 2007
UR  - http://www.nber.org/papers/w13540
L1  - http://www.nber.org/papers/w13540.pdf
N1  - Author contact info:
Oliver D. Hart
Department of Economics
Littauer Center 220
Harvard University
Cambridge, MA 02138
Tel: 617/496-3461
Fax: 617-495-7730
E-Mail: ohart@harvard.edu
AB  - We study two parties who desire a smooth trading relationship under conditions of value and cost uncertainty. A rigid contract fixing price works well in normal times since there is nothing to argue about. However, when value or cost is exceptional, one party will hold up the other , damaging the relationship and causing deadweight losses as parties withhold cooperation. We show that a judicious allocation of  asset ownership can help by reducing the incentives to engage in hold up. In contrast to the literature, the driving force in our model is payoff uncertainty rather than noncontractible investments.
ER  -