Relationship-Specific Investment and Hold-Up Problems in Supply Chains: Theory and Experiments

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dc.contributor.ORCID0000-0002-7037-7896 (Katok, E)
dc.contributor.authorHaruvy, Ernan
dc.contributor.authorKatok, Elena
dc.contributor.authorMa, Zhongwen
dc.contributor.authorSethi, Suresh
dc.contributor.utdAuthorHaruvy, Ernan
dc.contributor.utdAuthorKatok, Elena
dc.contributor.utdAuthorMa, Zhongwen
dc.contributor.utdAuthorSethi, Suresh
dc.date.accessioned2020-02-11T23:42:50Z
dc.date.available2020-02-11T23:42:50Z
dc.date.issued2018-07-20
dc.description.abstractSupply chains today routinely use third parties for many strategic activities, such as manufacturing, R&D, or software development. These activities often include relationship-specific investment on the part of the vendor, while final outcomes can be uncertain. Therefore, writing complete contracts for such arrangements is often not feasible, but incomplete contracts, especially when relationship-specific investment is required, may leave the supplier vulnerable to a version of the “hold-up problem,” which is known to result in sub-optimal levels of investment. We model the phenomenon as a sequential move game with asymmetric information. Absent behavioral considerations, the unique Perfect Bayesian Equilibrium implies zero investment. However, with social preferences, the hold-up problem may be mitigated. We propose a model that incorporates social preferences and random errors, and solve for the equilibrium. In addition, we look at reputation and find it to be effective for increasing investment. We conduct laboratory experiments with human subjects and find that a model with social preferences and random errors organizes our data well. © 2018, The Author(s).
dc.description.departmentNaveen Jindal School of Management
dc.identifier.bibliographicCitationHaruvy, E., E. Katok, Z. Ma, and S. Sethi. 2019. "Relationship-specific investment and hold-up problems in supply chains: theory and experiments." Business Research 12(1): 45-74 doi: 10.1007/s40685-018-0068-0
dc.identifier.issn2198-3402
dc.identifier.issue1
dc.identifier.urihttp://dx.doi.org/10.1007/s40685-018-0068-0
dc.identifier.urihttps://hdl.handle.net/10735.1/7263
dc.identifier.volume12
dc.language.isoen
dc.publisherSpringer
dc.rightsCC BY 4.0 (Attribution)
dc.rights©2018 The Authors
dc.rights.urihttp://creativecommons.org/licenses/by/4.0/
dc.source.journalBusiness Research
dc.subjectEconomics—Psychological aspects
dc.subjectGame theory
dc.subjectBusiness logistics
dc.subjectContracts
dc.titleRelationship-Specific Investment and Hold-Up Problems in Supply Chains: Theory and Experiments
dc.type.genrearticle

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Sethi, Suresh P
Haruvy, Ernan
Katok, Elena