Holdup and the evolution of bargaining conventions

Herbert Dawid; W. Bentley MacLeod

doi:doi:10.1051/ejess:2001102

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Volume 15 / No 3 (2001)

E.J.E.S.S., 15 3 (2001) 153-169

Abstract

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Issue		E.J.E.S.S. Volume 15, Number 3, 2001 Evolution and Learning in Markets


Page(s)		153 - 169
DOI		https://doi.org/10.1051/ejess:2001102

DOI: 10.1051/ejess:2001102

European Journal of Economic and Social Systems 15 N°3 (2001) 153-169

Holdup and the evolution of bargaining conventions

Herbert Dawid and W. Bentley MacLeod

Department of Economics, The University of Southern California, Los Angeles, CA 90089-0253, USA.

Abstract
As Posner (1997) has observed, when individuals in a relationship can commit to imposing costs upon each other then efficient behavior in the absence of law is possible. The question is whether efficient norms of behavior evolve endogenously in a population. We show that in a standard hold up model in which both parties make relationship specific investments the long run outcome of a stochastic adaptation process similar to Young (1993)'s `adaptive play' does not in general correspond to the efficient equilibria. As Grossman and Hart (1986) observe, institutions, such as firms, may be needed to improve the allocation of resources.