The hold-up problem, innovations, and limited liability

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

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: hold-up problem; incomplete contracts; research and development; limited liability
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D86 - Economics of Contract: Theory; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L23 - Organization of Production; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O31 - Innovation and Invention: Processes and Incentives

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