Free Access
Volume 15, Number 3, 2001
Evolution and Learning in Markets
Page(s) 153 - 169
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.

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.

Key words: Hold up problem, bargaining, evolution.

© EDP Sciences 2001