A Simple Economic Teaching Experiment on the Hold-Up Problem

17 Pages Posted: 4 Sep 2010

See all articles by Dieter Balkenborg

Dieter Balkenborg

University of Exeter - Department of Economics

Todd R. Kaplan

University of Exeter Business School - Department of Economics; University of Haifa - Department of Economics

Timothy J. Miller

University of Exeter Business School - Department of Economics

Date Written: September 3, 2010

Abstract

The hold-up problem is central to the theory of incomplete contracts. It shows how the difficulty to write complete contracts and the resulting need to renegotiate can lead to underinvestment. We describe the design of a simple teaching experiment that illustrates the hold-up problem. The model used is a simple perfect information game. The experiment can hence also be used to illustrate the concept of subgame perfect equilibrium and the problem of making non-binding commitments.

Keywords: classroom experiments, holdup problem

JEL Classification: C9, L14, K12

Suggested Citation

Balkenborg, Dieter and Kaplan, Todd R. and Miller, Timothy J., A Simple Economic Teaching Experiment on the Hold-Up Problem (September 3, 2010). Available at SSRN: https://ssrn.com/abstract=1671350 or http://dx.doi.org/10.2139/ssrn.1671350

Dieter Balkenborg

University of Exeter - Department of Economics ( email )

Streatham Court
Exeter EX4 4PU
United Kingdom

Todd R. Kaplan (Contact Author)

University of Exeter Business School - Department of Economics ( email )

Streatham Court
Exeter, EX4 4RJ
United Kingdom
+44 13 9226 3237 (Phone)

University of Haifa - Department of Economics

Haifa 31905
Israel

Timothy J. Miller

University of Exeter Business School - Department of Economics ( email )

Streatham Court
Exeter, EX4 4RJ
United Kingdom

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