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What is Efficient Firm Formation Strategies about?

This document discusses a model of efficient firm formation when agents face a hold-up problem after making relationship-specific investments. The model introduces the concept of reinvestment-proof equilibria where no agent wants to change firms or investment levels. It is shown that the presence of a small inefficient firm leads to substantially higher investment in all larger firms, alleviating the hold-up problem.

Author

Mihai Antonia

Language

EN