Holdups, simple contracts and information acquisition
نویسنده
چکیده
In a typical procurement setup, several recent papers have shown that when complete contracting is not possible, simple, noncontingent contracts may suffice to solve the under-investment problem. This paper points out that a noncontingent contract offer such as a fixed-price contract may induce the seller to acquire information on the future course of costs and only to accept the offer if the cost is low. It is shown that sometimes the buyer prefers to wait and buy on the spot market than to offer a long-term contract. When the seller rejects a contract offer or the buyer chooses not to make one, the seller will not make efficient investments because he expects to be held up on the spot market. © 2000 Elsevier Science B.V. All rights reserved. JEL classification: L22; D23; D82
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