Firms that anticipate hold-up,choose organizational or contractual forms

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Anticipating hold-up, firms choose organizational or contractual forms that give each party both the incentive to make relationship-specific investments. This ensures that both parties invest in the specific assets needed to make the partnership work and reduces the likelihood of one party exploiting the other's investment for their own benefit. By providing mutual incentives for investment, the parties are more likely to commit to the partnership, reducing hold-up problems.

Firms That Anticipate Hold-Up,choose Organizational or Contractual Forms