Cardozo Law Review
Abstract
In order to investigate the hold-up problem in co-ownership, we consider an indivisible asset in which one owner holds essentially 100% of the asset whereas the other, by virtue of ownership, has the legal right to block the sale of the asset. Apart from negotiation, the big owner's only remedy is to seek a legal partition, a procedure that eventually imparts the right to sell. As with most legal procedures, the remedy imposes legal costs and delay. Because the two parties are aware of this, they efficiently negotiate and divide the value of the asset without recourse to the courts. The amount received by the small owner, literally a hold-up payment, is a function of the discount rate, the time until a court ruling, and the value of the asset.
Our analysis employs cooperative bargaining in which the disagreement point is selected in accord with Nash's rational threats. Our analysis also includes the effects of risk-averse agents, stochastic time until the legal resolution of the partition, and multiple small ownership on our basic model.
Disciplines
Law
Recommended Citation
Manel Baucells & Steven A. Lippman,
Justice Delayed Is Justice Denied: A Cooperative Game Theoretic Analysis of Hold-Up in Co-Ownership,
22
Cardozo L. Rev.
1191
(2001).
Available at:
https://larc.cardozo.yu.edu/clr/vol22/iss3/26