Split it up to create incentives: Investment, public goods and crossing the river
- Author(s)
- Simon Martin, Karl Schlag
- Abstract
When should one pay the ferryman? When to pay for the delivery of a good, and how should one invest in a public good if there is a single transaction and institutions are costly? We show how to solve the hold-up problem. The idea is to appropriately split up the desired total contribution into several separate contributions that are made in sequence, with each party threatening to discontinue if others deviate. Our solution concept is based on subgame perfection, where players are either selfish and do not care about very small gains or are socially minded as long as there is no deviation.
- Organisation(s)
- Department of Economics
- External organisation(s)
- Heinrich-Heine-Universität Düsseldorf
- Journal
- Journal of Economic Theory
- Volume
- 189
- Pages
- 105092
- No. of pages
- 16
- ISSN
- 0022-0531
- DOI
- https://doi.org/10.1016/j.jet.2020.105092
- Publication date
- 09-2020
- Peer reviewed
- Yes
- Austrian Fields of Science 2012
- 502021 Microeconomics
- Keywords
- ASJC Scopus subject areas
- Economics and Econometrics
- Portal url
- https://ucris.univie.ac.at/portal/en/publications/split-it-up-to-create-incentives-investment-public-goods-and-crossing-the-river(0ba89d07-5470-4de9-bd92-994ccce8ec61).html