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When contracts are incomplete or unenforceable, inefficient levels of investment may occur because of hold-up. If individuals care for negative reciprocity, these problems may be reduced, as revenge becomes a credible threat. However, negative reciprocity has this effect only when the investor holds the rights of control of the investment proceeds. We explore this issue analytically, deriving predictions for holdup games which differ as regards assignment of rights of control. We also test and support these predictions in an experiment. (JEL C72, C92, D23, L14), I. INTRODUCTION The hold-up literature shows how relationship-specific investments and incomplete contracts combine to hurt partnership profitability. (1) The conclusions typically build on the assumption that agents selfishly maximize own [...]

In an incomplete information setting, we analyze the sealed bid auction proposed by Knaster (cf. Steinhaus (1948)). This procedure was designed to efficiently and fairly allocate multiple indivisible items when participants report their valuations truthfully. In equilibrium, players do not follow truthful bidding strategies. We find that, ex-post, the equilibrium allocation is still efficient but may not be fair. However, on average, participants receive the same outcome they would have received if everyone had reported truthfully—i.e., the mechanism is ex-ante fair. [ABSTRACT FROM AUTHOR]