Editing Hold-up problem (section)

=== Option contracts and renegotiation  ===
{{main|option contract}}

[[Georg Nöldeke|Nöldeke]] and [[Klaus M. Schmidt|Schmidt]] (1995) argued that the underinvestment problem due to the hold-up problem is eliminated if parties are able to write a simple [[option contract]]. Such a contract gives the seller the right but not the obligation to deliver a fixed quantity of the good and also makes the contractual payment of the buyer dependent on the delivery decision of the seller. Thus, this contract does not depend on renegotiation or complicated mechanisms, but its crucial feature is that one of the parties can unilaterally decide whether the trade takes place. However, such a contract is unachievable unless it is possible to enforce the payments conditional on the delivery decision of the seller. That means that the court must be able to verify delivery of the good to the buyer by the seller.<ref>Nöldeke, G., & Schmidt, K. (1995). Option Contracts and Renegotiation: A Solution to the Hold-up Problem. ''The RAND Journal of Economics, 2''(26), 163-179. {{JSTOR|2555911}}</ref> The possibility was ruled out in earlier research where it was assumed that when trade fails, it is not possible for the court to distinguish whether the buyer did not accept the delivery or the seller refused to supply.<ref>Hart, O., & Moore, J. (1988). Incomplete Contracts and Renegotiation. ''Econometrica, 4''(56), 755-785. {{JSTOR|1912698}}</ref>