Hostage Or Reputation?

On the one hand,relationship-specific investment can reduce the production cost of the enterprise,but on the other hand,the relationship-specific investment will also form a locking effect between the two parties,giving the trading party an opportunity to capture the appropriable specialized quasi rents generated by specific assets.In the real world,due to bounded rationality and other reasons,the contract is often incomplete,and one party to the transaction can plunder the proceeds of the other party,that is,the ex post opportunistic behavior named hold up.The party making the specific investment expects the risk of being held up,and it is difficult to choose an efficient investment level,which in turn affects the welfare level of the whole society.The production and operation of an enterprise are often inseparable from the cooperation with upstream and downstream enterprises.However,the existence of hold up problem is difficult to allow enterprises to open up and cooperate effectively,which is not conducive to the development of overall social productivity and to the improvement of the level of innovation.Since Klein officially proposed the concept of hold up in 1978,the theoretical community has not stopped discussing the issue of hold up,especially the discussion on the mechanism to solve hold up problem.Klein and others insist that vertical integration is an effective way to solve the problem of hold up.Coase and others support long-term contracts.In the last dozen years,some scholars have proposed more specific solutions.This paper chooses two kinds of mechanisms,which are used in real-life transactions and are easy to implement,and adopts the experimental economics research method to set up the control group,hostage group and reputation group to compare the effect of mechanisms to solve hold up problem.First of all,this paper clarifies the concept of hold up and the problems caused by it,and reviews the previous literature on the issue of hostage mechanism and reputation mechanism.For the problem of hold up in different fields,the hostage mechanism and reputation mechanism have all proved to play a role in alleviating the problem of hold up.Secondly,through re-combing Klein's self-enforcing model,this paper finds that the hostage mechanism and reputation mechanism play an important role in improving private performance capital,reducing default income and expanding the scope of perfornance,which affects the bargaining power of both parties during renegotiation and increases the party's share of appropriable specialized quasi rents.On this basis,this paper puts forward the hypothesis that the hostage mechanism and reputation mechanism can alleviate the problem of hold up.Next,this paper sets up three experimental groups:control group,hostage group and reputation group.Through the method of experimental economics,the behavior of buyers and sellers is studied,which confirms the effect of hostage mechanism and reputation mechanism on the problem of hold up.It is reflected in two aspects:(1)both the hostage mechanism and the reputation mechanism have significantly improved the seller's investment level and promoted the increase of total income.(2)Under the hostage mechanism and reputation mechanism,the buyer's distribution is obviously improved compared with the control group.And the distribution ratio under the hostage mechanism is more obvious.Finally,combined with the research results of this paper,from the two perspectives of hostage mechanism and reputation mechanism,establish a variety of flexible and perfect hostage mechanism and reputation mechanism,reduce the implementation cost of hostage mechanism and reputation mechanism,and give full play to the role of hostage mechanism and reputation mechanism.The effect is to expand the scope of compliance and reduce the occurrence of hold up,thereby promoting the improvement of the overall social welfare level.