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A class of contracting problems in which the relative bargaining power between agents can be affected by actions. Consider two parties that can work together to mutual advantage provided that one of the agents first undertakes an investment. Before the investment is made the two agents are in a symmetric position. After one agent has made the investment the other is in an advantageous position: their bargaining power has increased since the agent that has made the investment has more to lose if no agreement is reached. As a consequence it is possible that neither agent will make the investment, and the potential gains from collaboration will not be realized.

Subjects: Economics.


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