Managing Strategically Outside Options under Incomplete Contracts

摘要

This paper studies an incomplete contract framework in which specific investments affect parties' outside options. We show that the 'direction' of standard hold-up in this new framework strictly depends on the impact generated by investments on ex-post parties' outside options. This conclusion reverses some of the main results raised by the standard literature on incomplete contracts. Under given conditions, parties may even over-invest in assets specificity, as the changes induced in outside options improve their ex-post bargaining power. We discuss the implications for competition policy and for the management of incomplete contracts.