We explore the hold-up problem when parties can make investments simultaneously or sequentially. Sequencing of investments can allow some projects to proceed that would not be feasible with a simultaneous regime. However, a cost of sequencing is that it can disadvantage some parties, reducing their incentive to invest. The mere possibility of sequential investment can prevent trade from occurring; this can be interpreted as a new form of hold-up. If both parties prefer to invest second, as the number of potential investment periods is increased, the subgame-perfect equilibrium can switch between a prisoners' dilemma and a coordination game.
|Number of pages||15|
|Journal||RAND Journal of Economics|
|Publication status||Published - Jun 2004|