Timing of investments, holdup and total welfare

Smirnov, Vladimir; Wait, Andrew

doi:10.1016/j.ijindorg.2003.09.002

Cited by 9 publications

(11 citation statements)

References 10 publications

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“…Conversely, if 1 2 δR − f 2 < 0 the seller will anticipate the hold-up problem and opt not to invest, reducing total surplus. 15 Now consider when the parties can only invest sequentially. In this case the two parties will renegotiate after the buyer has sunk his investment but prior to the seller investing f 2 .…”

Section: Follow-up and The Timing Of Investmentmentioning

confidence: 99%

Hold-Up and Sequential Specific Investments

Smirnov

Wait

2004

The RAND Journal of Economics

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We explore the holdup problem when trading parties can make specific investments simultaneously or sequentially. As previously emphasized in the literature, sequencing of investments can allow some projects to proceed that would not be feasible with a simultaneous regime. This is not always the case, however. A cost of sequencing investment is that it can disadvantage some parties, reducing their incentive to invest. The mere possibility of sequential investment can be detrimental to welfare; it can even prevent trade from occurring. This is a new result: it allows the choice about the timing of investment to be interpreted as a new form of holdup. We also examine an investment game in which both parties would prefer to invest second (follow) rather than lead. This game displays some interesting dynamics. As the the number of potential investment periods is increased, the subgame perfect equilibrium can switch between a prisoners' dilemma and a coordination game.

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Section: Follow-up and The Timing Of Investmentmentioning

confidence: 99%

Hold-Up and Sequential Specific Investments

Smirnov

Wait

2004

The RAND Journal of Economics

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“…Their main result is that for sufficiently patient players, the hold‐up problem may be alleviated because of the shadow of the future. Smirnov and Wait () focus on the timing of investments in a bilateral relationship where (i) two players can invest only once, and (ii) trade occurs only once and only if both players have made a specific investment. Their paper shows that if the potential investment horizon is continually extended, players move in alternation from a prisoners' dilemma to a coordination game.…”

Section: Discussion and Related Literaturementioning

confidence: 99%

Knowledge Accumulation Within an Organization

Long

Soubeyran

2014

International Economic Review

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Abstract:We develop a simple model of task allocation for knowledge workers over their career within an organization. The human capital theory initiated by Becker (1962Becker ( , 1964 has offered a rich analysis of an individual's life cycle investment in human capital. One of the main result of this literature states that human capital investments are undertaken at the early stage of the career because workers have then a longer period of time over which they can benefit from the return of their investments. In this paper, we consider a knowledge accumulation problem within an organization that cannot prevent the worker from quitting and using the knowledge outside the organization. In the first best situation, we show a similar result as in the human capital theory, i.e. the share of time allocated to knowledge creation tasks decreases over time. We then ask how this pattern is affected when the knowledge worker can leave the organization and benefit from this knowledge outside the organization. In this case, we obtain the novel result that the time path of the fraction of working time allocated to knowledge creation tasks is non-monotone. This fraction is highest at the early career stage, falls gradually, then rises again, before falling finally toward zero.We also show that an increase in the firm-specificity of knowledge can increase or decrease the life-time income of the knowledge worker.JEL codes: J24, C61, D23, J41, L00

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“…Following the formulation of Smirnov and Wait (2004a), we define the environmental protection effect function as…”

Section: Model Setupmentioning

confidence: 99%

“…Smirnov and Wait (2004a) used a similar function to analyse the optimal collaborative investment-timing and the influence of the hold-up problem on the social welfare. The setup for their function wasE ¼ R i ln m i , where i ¼ A or B.768M.-C. Chang and J.-L. Hu Downloaded by [Harvard Library] at 09:41 04 October 2014…”

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confidence: 99%

Inconsistent preferences in environmental protection investment and the central government's optimal policy

Chang

2011

Applied Economics

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Environmental protection plans cannot succeed without full cooperation among related units. However, inconsistent investment preferences toward environmental protection increase the damage to the environment. This article employs the contract mechanism to analyse environmental protection effects when the central government directly subsidizes the local governments. The results reveal that subsidies from the central government are not only unable to solve the problem of the inconsistent investment preferences among the central and local governments but also induce the free-riding behaviour of local governments. Because of the free-riding behaviour of the local governments, there is no such equilibrium in which the central government prefers the sequential investment mode while the local governments prefer the simultaneous investment mode.

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Timing of investments, holdup and total welfare

Cited by 9 publications

References 10 publications

Hold-Up and Sequential Specific Investments

Hold-Up and Sequential Specific Investments

Knowledge Accumulation Within an Organization

Inconsistent preferences in environmental protection investment and the central government's optimal policy

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