Simple contracts, renegotiation under asymmetric information, and the hold-up problem

In this article it is demonstrated that voluntary bargaining over a collective decision under asymmetric information may well lead to ex post efficiency if the default decision is non-trivial. It is argued that the default decision may be interpreted as a 'simple' contract that the parties have written ex ante. This result is used in order to show that simple unconditional contracts which are renegotiated may allow the hold-up problem to be solved, even if the parties' valuations are private information. (C) 2002 Elsevier Science B.V. All rights reserved.