Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/94067 
Year of Publication: 
2009
Series/Report no.: 
SFB/TR 15 Discussion Paper No. 281
Publisher: 
Sonderforschungsbereich/Transregio 15 - Governance and the Efficiency of Economic Systems (GESY), München
Abstract: 
We consider the case of an upstream seller who works to improve an asset that has been specialized to a downstream buyer's needs. The buyer then makes a take it or leave it offer to the seller about how the future surplus should be split. We assume that the seller from the outset has private information about the fraction of the surplus that he can realize on his own, and show that this leads to higher investment compared to the complete information case. This positive effect on investment is countervailed by the occurrence of inefficient separations, which result when the buyer mistakenly tries to call the seller's bluff with a low offer.
Subjects: 
signaling
relationship-specific investment
incomplete contracts
outside options
JEL: 
D82
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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