A Survey of the Hold‐up Problem in the Experimental Economics Literature

Abstract

This paper reviews experimental studies on the so‐called “hold‐up problem.” Common features in the experimental design and results are summarized. Most experimental studies show evidence of the hold‐up problem, but to an extent less severe than what standard self‐interest model predicts. Hold‐up occurs at the individual level, but exhibits a less severe pattern than theoretically predicted at the aggregate level. A positive correlation is found between the investment stage decisions and subsequent bargaining behavior. Social preferences largely influence the results in hold‐up games. Remedies that enhance the effect of social preferences can effectively alleviate the hold‐up problem. These laboratory findings are also relevant to real‐life hold‐up situations, but differences in the specific institution and environment may require more variations in the experimental design.

Affordable Prices Without Threatening the Oncological R&D Pipeline—An Economic Experiment on Transparency in Price Negotiations

“…Thus, pharmaceutical companies could be reassured to recover high R&D costs through high prices—even in the absence of contracts binding countries to offer such coverage ex-ante. This result is in line with findings from prior economic experiments ( 40 ). Shared risk between countries and the company could have helped to sustain R&D investments despite lower overall prices.…”

Social Preferences: Fundamental Characteristics and Economic Consequences

“…Another example is provided by the large experimental literature on behavior under the holdup problem (see Yang (2021) for a review). This literature shows that the underinvestment problem is typically considerably less severe than predicted by the self-interest model (see, e.…”

Social Preferences: Fundamental Characteristics and Economic Consequences

“…One example of this is the relatively high efficiency of incomplete bonus contracts in Fehr, Klein and Schmidt (2007), which we discussed above. Another example is provided by the large experimental literature on behavior under the hold-up problem (see Yang (2021) for a review). This literature shows that the underinvestment problem is typically considerably less severe than the self-interest model predicts (see, e. g., Gantner, Güth and Königstein (2001); Ellingsen and Johannesson (2004a;2004b); Dufwenberg, Smith and van Essen ( 2013)).…”