Asymmetric Information Upends Bargaining Power, Disrupting Contracts and Investments
The article looks at how contracts can cause issues when buyers invest money in a situation where they may feel cheated or taken advantage of ("hold-up problem"). When both sides don't share all the information, who holds more power can change things. The researchers found that if both the buyer and seller don't tell everything they know, the power balance can weaken the buyer's motivation to spend on their investment. This is different from when only one side hides information, where more power for the buyer usually leads to more investment.