M ORE than forty years have passed since Coase's fundamental insight that transaction, coordination, and contracting costs must be considered explicitly in explaining the extent of vertical integration.' Starting from the truism that profit-maximizing firms will undertake those activities that they find cheaper to administer internally than to purchase in the market, Coase forced economists to begin looking for previously neglected constraints on the trading process that might efficiently lead to an intrafirm rather than an interfirm transaction. This paper attempts to add to this literature by exploring one particular cost of using the market system-the possibility of postcontractual opportunistic behavior. Opportunistic behavior has been identified and discussed in the modern analysis of the organization of economic activity. Williamson, for example, has referred to effects on the contracting process of "ex post small numbers opportunism,"2 and Teece has elaborated: Even when all of the relevant contingencies can be specified in a contract, contracts are still open to serious risks since they are not always honored. The 1970's are replete with examples of the risks associated with relying on contracts. .. [O]pen displays of * We wish to acknowledge useful comments on previous drafts by Harold Demsetz,

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Court enforcement and private enfbrcement are not alternative contract enJorcement mechanisms, but are used jointly by transactors to d@ne the se!f-enfbrcing range 4 a contractual relationship. Within this framework contract terms economize on the limited amounts I$ private @rcement capital possessed by transactors, either by directly controlling transactor behavior or by sh@ing private enfbrcement capital between transactors to coincide with likely fiture market conditions. Hold-ups occur when market conditions change strfficiently to place the relationship outside the s e y erfbrcing range. This probabilistic view I$ hold-ups is contrasted with opportunism more generally and with moral hazard behavior. One of my most enjoyable intellectual experiences was working with Armen Alchian on the Klein, Crawford and Alchian[1978] hold-up paper. In this paper I extend the basic framework presented in that paper, pointing out what I now consider to be its shortcomings and providing insights into the nature of hold-ups and the form of contracts chosen by transactors to avoid hold-ups. The major analytical extension entails combining hold-up analysis with my work on private enforcement. Because private enforcement capital is limited and written contract terms are necessarily imperfect, transactors must optimally combine court-enforced written terms together with privately enforced unwritten terms to define what I call the self-enforcing range of their contractual relationship. Hold-ups occur when unanticipated events place the contractual relationship outside the self-enforcing range. This probabilistic framework, where transactors enter contractual rela-* Professor, University of California, Los Angeles. I am grateful for comments from Armen Alchian, Harold Demsetz,