Bargaining under incomplete information, fairness, and the hold-up problem

Abstract

"In the hold-up problem incomplete contracts cause the proceeds of relationship-specific investments to be allocated by bargaining. This paper investigates the corresponding investment incentives if individuals have heterogeneous fairness preferences and thus differ in their bargaining behavior. Individual preferences are taken to be private information. Investments can then signal preferences and thereby influence beliefs and bargaining behavior. In consequence, individuals might choose high investments in order not to signal information that is unfavorable in the ensuing bargaining." [author's abstract]