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Contractual signalling, relationship-specific investment and exclusive agreements

Vasconcelos, LI (2006) Contractual signalling, relationship-specific investment and exclusive agreements. UNSPECIFIED. Universidade Nova de Lisboa, FEUNL Working Paper Series, wp495.

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I analyze a simple model of hold-up with asymmetric information at the contracting stage. I show that contractual signalling and efficiency of investment can conflict if only quantity is contractible. This is because contracted quantity encourages investment in the relationship but also signals information. This conflict generates inefficient equilibria in terms of investment. Contracting on exclusivity in addition to quantity resolves the conflict (and consequently eliminates the inefficiency of investment) when the asymmetry of information concerns the value of trade with external parties. While exclusivity also signals information, unlike quantity it does not directly affect relationship-specific investment.

Item Type: Monograph (UNSPECIFIED)
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Jim Jamieson
Date Deposited: 13 Jul 2012 14:36
Last Modified: 01 Jun 2018 12:15

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