Events

Economics Seminar

Authors:

• Eric S. CHOU
  National Tsing Hua University

• Jenn-Hong Tang
  National Tsing Hua University

To help provide a foundation for the outside-options concept used in a popular property-rights theory of the firm, we construct a general equilibrium model of hold up in which the outside option is endogenously determined. We find that there exist hold-up (underinvestment) as well as rent-seeking (overinvestment) in equilibrium. We also show how the planner's problem can be decentralized as a competitive matching equilibrium and how inefficiency in the competitive matching equilibrium can be eliminated. The model provides a framework to examine how search externalities interact with the hold-up problem.