Faculty of Economics and Business Administration Publications Database

Bargaining under Incomplete Information, Fairness, and the Hold-up Problem

Volume: 71
Number: 2
Pages: 486 - 494
Month: August
ISSN-Print: 0167-2681
Link External Source: Online Version
Year: 2009
Keywords: Hold-up; Relationship-specific investments; Fairness; Reciprocity; Asymmetric information; Signalling
Abstract: In the hold-up problem incomplete contracts cause the proceeds of relationship-specific investments to be allocated by bargaining. This paper investigates the corresponding investment incentives if individuals have heterogeneous fairness preferences. Individual preferences are taken to be private information. Investments can then signal preferences and thereby influence beliefs and bargaining behavior. In consequence, individuals might choose high investments in order not to signal information that is unfavorable in the ensuing bargaining.