Specific Investments, Flexible Adaptation, and Requirement Contracts |
| |
Authors: | Tian Zhu |
| |
Affiliation: | Zhu:;Associate Professor, Division of Social Science, Hong Kong University of Science and Technology, Clear Water Bay, Hong Kong. E-mail |
| |
Abstract: | In a simple hold-up model with contractible cost-related variables, I show that an optimal requirement contract with "standard cost"–based nonlinear pricing can provide both ex post flexibility for adaptation and ex ante incentives for relationship-specific investments. The result is related to contractual arrangements observed in vertical procurement relationships. |
| |
Keywords: | |
|
|