Economics, Econometrics and Finance
4 years ago

Option contracts eliminate hold-up problem, paving way for fair trade.

RePEc: Research Papers in Economics
Option contracts and renegotiation: A solution to the Hold-Up Problem
Georg Nöldeke, Klaus M. Schmidt

Paper Summary

The paper shows that using option contracts can help solve the hold-up problem in trade agreements. These contracts give the seller the power to decide if the trade will happen, leading to the best possible outcome. This solution doesn't need complex designs and can work even without renegotiation in some cases.

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