| Abstract: | In a recent article, Lyon and Rasmusen (2004) argue that buyer-optioncontracts are more effective at solving the holdup problem thanhas been previously recognized. This article examines the robustnessof that claim to changes in the bargaining game they analyzeand to changes in the nature of the trade between the buyerand seller. I find that the possibility of renegotiation ina model of cooperative investment (Che and Hausch 1999) doesgenerate a holdup problem if the players discount the futureand the bargaining game is sufficiently long. This change inthe bargaining game does not resurrect the holdup problem inthe basic product complexity model (of Hart and Moore 1999).However, if the good to be traded must be supplied continuallyrather than only one time, then the holdup problem reemerges(even with buyer-option contracts) for some parameter values. |
