Contracts, Holdup, and Legal Intervention

Contractual Holdup and Legal Intervention S. Shavell 3/5/08 Contracts, Holdup, and Legal Intervention

Contractual Holdup and Legal Intervention

This article develops the point that incentive and risk-bearing problems associated with contractual holdup may justify legal intervention. Contractual holdup is considered both for fresh contracts and for modifications of contracts. One type of legal intervention is flat voiding of contracts. Such intervention tends to be advantageous when holdup situations are engineered. Another type of inte...

Can Blockchains Solve the Holdup Problem in Contracts?

A basic problem in contracting is holdup: after one party has made relationship-specific investments, the other party refuses to perform unless the first one offers better terms than the original contract. Such renegotiation deters relationship-specific investments and reduces the value of trade via contract, which can either result in no trade or more trade within firms. A classic example is t...

Legal Restrictions and Optimal Contracts∗

Real-world transactions are often limited: Not all contracts are legal. As a result, I show economic examples where the only way to achieve first-best is as follows. First, the parties contractually commit to a different and ineffi cient different outcome. Then, they secretly violate the contract and coordinate play on first-best. If the parties were to contractually commit to first best, they ...

Contracts between Legal Persons

Contracts between Legal Persons Contract law and the economics of contract have, for the most part, developed independently of each other. In this essay, we briefly review the notion of a contract from the perspective of lawyer, and then use this framework to organize the economics literature on contract. The title, Contracts between Legal Persons, limits the review to that part of contract law...