Centre for Development Economics
Department of Economics, Delhi School of Economics


Holdup: Gradualism, Investment Dynamics and Efficiency


Prabal Roy Chowdhury

Indian Statistical Institute, Delhi

Thursday, 18th April 2013 at 3:00 PM

Venue : Seminar Room (First Floor)
Department of Economics, Delhi School of Economics

All are cordially invited


This paper examines a bilateral holdup problem, where either one, or both the agents can invest in the transaction.  In a dynamic framework with investment dynamics and bargaining, we find that the equilibrium may involve gradualism, in that it involves small increments of investments followed by small increments of payments, until the aggregate investment reaches an “asymptotically efficient’’ level. Further, in case only one of the agents can invest,  then `asymptotic efficiency’ obtains unconditionally, so that the holdup problem is fully resolved. This extends the literature, in particular Che and Sakovicz (2004), since it does not require “individual rationality’’.


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