Editing Option contract (section)

== Contract theory ==
In economics, option contracts play an important role in the field of [[contract theory]]. In particular, [[Oliver Hart (economist)|Oliver Hart]] (1995, p. 90) has shown that option contracts can mitigate the [[hold-up problem]] (an underinvestment problem that occurs when the exact level of investment cannot be contractually specified).<ref>{{Cite book|title=Firms, contracts, and financial structure|last=Hart|first=Oliver|publisher=Clarendon Press|year=1995}}</ref> However, there is a debate in contract theory whether option contracts are still useful when the contractual parties cannot rule out future renegotiations.<ref>{{Cite journal|last1=Lyon|first1=T. P.|last2=Rasmusen|first2=E.|date=2004|title=Buyer-Option Contracts Restored: Renegotiation, Inefficient Threats, and the Hold-Up Problem|journal=Journal of Law, Economics, and Organization|language=en|volume=20|issue=1|pages=148–169|doi=10.1093/jleo/ewh027|issn=8756-6222|url=http://kelley.iu.edu/riharbau/RePEc/iuk/wpaper/bepp2004-10-lyon-rasmusen.pdf}}</ref> As has been pointed out by Tirole (1999), this debate is at the center of the discussions about the foundations of the [[incomplete contracts]] theory.<ref>{{Cite journal|last=Tirole|first=Jean|date=1999|title=Incomplete Contracts: Where do We Stand?|journal=Econometrica|language=en|volume=67|issue=4|pages=741–781|doi=10.1111/1468-0262.00052|issn=1468-0262|citeseerx=10.1.1.465.9450}}</ref> In a laboratory experiment, Hoppe and Schmitz (2011) have confirmed that non-renegotiable option contracts can indeed solve the hold-up problem.<ref>{{Cite journal|last1=Hoppe|first1=Eva I.|last2=Schmitz|first2=Patrick W.|date=2011|title=Can contracts solve the hold-up problem? Experimental evidence|journal=Games and Economic Behavior|volume=73|issue=1|pages=186–199|doi=10.1016/j.geb.2010.12.002|s2cid=7430522}}</ref> Moreover, it turns out that option contracts are still useful even when renegotiation cannot be ruled out. The latter observation can be explained by Hart and Moore’s (2008) idea that an important role of contracts is to serve as reference points.<ref>{{Cite journal|last1=Hart|first1=Oliver|last2=Moore|first2=John|date=2008|title=Contracts as Reference Points*|journal=Quarterly Journal of Economics|language=en|volume=123|issue=1|pages=1–48|doi=10.1162/qjec.2008.123.1.1|issn=0033-5533|citeseerx=10.1.1.486.3894}}</ref>