Munich Personal RePEc Archive

The hold-up problem, innovations, and limited liability

Schmitz, Patrick W. (2012): The hold-up problem, innovations, and limited liability.

[img]
Preview
PDF
MPRA_paper_43407.pdf

Download (140kB) | Preview

Abstract

An inventor can invest research effort to come up with an innovation. Once an innovation is made, a contract is negotiated and unobservable effort must be exerted to develop a product. In the absence of liability constraints, the inventor's investment incentives are increasing in his bargaining power. Yet, given limited liability, overinvestments may occur and the inventor's investment incentives may be decreasing in his bargaining power.

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.