CAN A SPECIFIC PERFORMANCE CONTRACT SOLVE THE HOLD-UP PROBLEM?

This paper aims to define the conditions under which a specific performance contract can solve the hold-up problem. We mainly show two results. First, in a very general environment the efficient solution is achieved only with renegotiation design. Second, in a specific environment where the valuation functions satisfy a separability condition, the efficient solution is implemented only because there is an equivalence result between this condition and a state independence assumption. This implies that a specific performance contrat is unecessary since a volontary contract is also able to achieve efficiency.