The Effect of Illegal Movie Downloads on the US Box Office
The Hold-Up Problem in Settings with a Durable Trading Opportunity (with Joel Watson)
We examine a contractual setting with unverifiable investment and a durable trading opportunity, where trade can take place at any of an infinite number of periods. We show that it is possible to attain an efficient outcome in this durability setting exactly when efficiency can be achieved in the setting in which the opportunity to trade is non-durable. Thus, durability is less important as a determinant of the holdup related inefficiency than has been thought. In our class of examples, simple open-ended option contracts suffice to induce efficient investment. Furthermore, unique implementation is achieved with a specific non-stationary option contract. Our model allows us to clarify the outside option principle.s bearing on the holdup literature.
Decision-making Under Incomplete Preferences