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.