Hold-up problem

Under the hold-up is understood in economics, a situation that is described in the new institutional economics, especially in the contract theory. In a hold-up situation, two contractors go ex ante a business relationship, which the seller obliged usually to make investments. Since the to-exchange asset may not be fully described, can be ex ante neither the costs nor the willingness to pay determine exactly. Therefore, only an incomplete contract is written in the rule.

Meeting, the business partners at the agreed time again, the willingness to pay and the cost can be accurately determined. Usually it comes to exchange, if the willingness to pay of the buyer on the cost of the goods is. Crucially, who has the bargaining power. Is this the buyer, the seller is ex ante not make those investments that would maximize welfare. Hold -up problems describe in general terms, situations in which information is ex post recognizable and lead to ex ante not have the right incentives.

The main cause of the hold-up is the incompleteness of information that possess the contractors about the possibilities, interests and intentions of the other. The risk of hold-ups is especially true if the is a partner to rely on the services of the other ( for example, if a producer can not switch to other suppliers) or if he has made specific investments in reliance on the contract compliance of the partner ( such as when a trader has bought special machines in reliance on acceptance commitments).

To cope with this problem, one can create by collateral (guarantees, Desire of guarantees) a balance of interests.