Specific investments, holdup, and the outside option principle
European Economic Review
Faculty of Economics and Business (FEB)
Amsterdam School of Economics Research Institute (ASE-RI)
According to the outside option principle the holdup problem can be solved when the non-investor has a binding outside option.
The investor then becomes residual claimant, creating efficient investment incentives. This paper reports about an experiment
designed to test this. We find that when the outside option is binding investment levels fall short of the efficient level,
but holdup is less of a problem than predicted when the outside option is non-binding.
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