Holdout problem

from Wikipedia, the free encyclopedia

As holdout problem (Engl. Holdout problem- from " holdout ", deny, withhold) is a problem of collective action called. The problem can arise when an investment or a contract requires the approval of all parties involved, or at least the approval of a quorum . The final required party may therefore derive undue benefit from their consent, otherwise the entire investment or contract will not materialize for all. Holdout problems are examples of market failure and are considered a special case of the free rider problem or the “ tragedy of the anticommons ”.

theory

The holdout problem can be viewed as a generalization of the prisoner's dilemma : If a sufficiently large number of players decide to cooperate ("cooperation" = C ), a public good is produced. A minority of players instead opts for non-cooperation ("defection" = D ). The non-cooperating players draw a higher profit from the transaction than the cooperating players, but only as long as the coalition of the cooperating players does not collapse. Non-cooperation therefore leads to a higher share of the profit for the individual non-cooperating player, but if too many players also do not cooperate, everyone loses. The holdout problem can be described by means of cooperative game theory due to the problem of coalitions .

The difference between the holdout problem and the prisoner's dilemma is not just the number of players - two in the prisoner's dilemma, at least three in the holdout problem. In the case of the single prisoner's dilemma, both players decide without knowing what the other's approach is, after which the decisions are revealed. The prisoner's dilemma is therefore point-based. The holdout problem, on the other hand, takes place in theory and practice on the time axis: coalitions can form, players signal their intentions, join coalitions and leave them again.

Typically, with the holdout problem, there is either a specific, previously known point in time for the decision to which the players are heading in implementing their strategy - an example would be the vote in an already scheduled general meeting , which, even if all parties involved agree, does not take place earlier for reasons of form can. Alternatively, the decision is made on the latest possible date, the deadline , but can also be made beforehand if certain, predefined conditions occur. An example of this type of time frame is the takeover of shares by a majority shareholder who is planning a delisting . The deadline would be the validity of the purchase offer; the earlier termination takes place as soon as the majority shareholder has reached the ownership threshold of 95%, so that a squeeze-out becomes possible.

Occur

Debt rescheduling

If bonds can no longer be serviced by the debtor, the interest payments due to the creditors will not be paid and the value of the bonds on the secondary market will decline. On the part of the debtor - in the case of government bonds, a sovereign nation state - the rating falls and new loans can only be taken out significantly overpriced ( junk bonds ) or not at all. Since the current payment obligations from the national budget (in the case of states) or operational business (in the case of companies) cannot be reduced quickly enough, more and more bonds are failing, and insolvency threatens. While there are insolvency proceedings for companies , there are no comparable procedures for entire countries, see national bankruptcy .

If the outcome is successful, the restructuring process usually leads to a partial haircut and the relocation of repayments into the more distant future. However, this requires the consent of the majority of the creditors. Even if the restructuring comes about, there may be creditors who oppose the agreement (holdouts). These creditors then put pressure on the debtor through litigation, public relations and high-profile seizures to compensate them at the nominal value of the bonds. This may even be possible for the debtor country due to the regained solvency, but creates a moral hazard for the next restructuring . A well-known example is the rescheduling of Argentine government bonds after 2001, in which Elliott Management Corp. acted as a holdout under Paul Singer until 2016.

Real estate projects

In order to realize a larger project, real estate developers often have to combine smaller parcels of different previous owners to form a larger property. In the simplest case, there are two property owners with neighboring parcels of the same size. For example, each of the two owners would be willing to sell their property for EUR 100,000. A real estate developer must acquire both plots in order to implement his project. He would be willing to pay a maximum of EUR 250,000 for this, but only for both properties together. Neither of the two properties is of any use to him alone, since the planned project necessarily requires a larger area. This now leads to a holdout problem, since each of the sellers will try to collect the greater part of the maximum purchase price for themselves.

This type of land assembly can be difficult due to the holdout problem or significantly increase the costs and risk. To avoid these problems, real estate developers prefer areas that are owned by only a few hands. This tends to lead to more development on the outskirts, where the plots are on average larger. This contributes to urban sprawl and makes it difficult to revitalize industrial wastelands close to the center or other disadvantaged areas with a fragmented ownership structure. A possible remedy in such areas can be expropriation with compensation at market prices.

The holdout problem is only partially responsible for the difficulty of buying up plots owned by multiple sellers in order to combine them into one large property. High transaction costs and strategic haggling drive the price up. Both costs increase with the number of sellers and reduce the buyer's profit, as has been shown experimentally. If there is a real cost to the seller in delaying the sale, the holdout problem can be reduced. This result is consistent with a behavior model that is based on insufficient knowledge of the reservation price of the other actors.

Transmission frequencies and licenses

When broadcasting frequencies are auctioned , it can happen that in certain (few) regions these frequencies are already allocated. This enables existing vendors to disrupt the auction in other areas or charge excessive prices for the cession. In order to prevent the holdout problem in such cases, the FCC, as the competent authority, can oblige existing providers in the USA to swap their broadcasting slots.

Countermeasures

In the case of infrastructure measures such as the construction of roads or routes for power lines, expropriation can at least be threatened as an alternative approach in order to obtain the approval of the last necessary refusers (“holdouts”) in order to achieve a price close to the market.

Another approach is market design , i.e. the conscious specification of rules and negotiation processes in order to find a fair solution despite potential holdout problems. One possibility is the introduction of preliminary contracts , which makes the successful conclusion of the negotiations more likely. However, this does not mean that buyers are significantly better off, which indicates that the welfare gains are realized, but are distributed while avoiding or dissolving blockages on the part of the seller.

With distressed corporate bonds , restructuring is less common than with government bonds. If it does take place, a haircut could only take place on a voluntary basis under German law until 2009, i. H. with the consent of all creditors. This led to the “problem of obstructive creditors”, ie the holdout problem. The German Debt Securities Act (SchVG), which dates from 1899, was changed in 2009, which means that restructuring mechanisms that are binding for all creditors are now possible by majority vote. Waiver of claims, deferral and changed interest agreements can since then be made with a three-quarters majority of the voting creditors. This only applies to issues after August 5, 2009. In general, bond conditions that allow conditions to be changed with a majority of the bondholders' approval are referred to as the Collective Action Clause (CAC).

literature

Individual evidence

  1. ↑ Stephen G. Moyer: Distressed Debt Analysis: Strategies for Speculative Investors . J. Ross Publishing, Boca Raton (FL) 2004, ISBN 978-1-93215918-9 , pp. 76f.
  2. ^ Roger A McCain: Game Theory: A Nontechnical Introduction to the Analysis of Strategy , 3rd Edition. World Scientific Publishing Co., Hackensack (NJ) 2014, ISBN 978-981457887-5 , pp. 397f.
  3. ^ Abel M. Winn, Matthew W. McCarter: Who's Holding Out? An Experimental Study of the Benefits and Burdens of Eminent Domain . In: Journal of Urban Economics , Vol. 105 (2018), Issue C, pp. 176-185, doi : 10.1016 / j.jue.2017.10.001 .
  4. ↑ Thomas J. Miceli, CF Sirmans: The holdout problem, urban sprawl, and eminent domain . In: Journal of Housing Economics . Volume 16, Issues 3-4 (November 2007), pp. 309-319. doi : 10.1016 / y.jhe.2007.06.004
  5. ↑ John Cadigan, Pamela Schmitt, Robert Shupp, Kurtis Swope: The holdout problem and urban sprawl: Experimental evidence . In: Journal of Urban Economics , Vol. 69, No. 1 (January 2011), pp. 72–81, doi : 10.1016 / j.jue.2010.08.006 .
  6. ^ Martin Bichler, Jacob K. Goeree: Handbook of Spectrum Auction Design . Cambridge University Press, Cambridge 2017, ISBN 9781107135345 , pp. 804f.
  7. ↑ Scott Duke Kominers, E. Glen Weyl: holdout in the Assembly of Complements: A Problem for Market Design . In: The American Economic Review. Vol. 102, No. 3 (May 2012), pp. 360-365.
  8. ↑ Sean M. Collins, R. Mark Isaac, Holdout: Existence, Information, and Contingent Contracting . In: The Journal of Law and Economics , Vol. 55, No. 4 (November 2012), pp. 793-814, doi : 10.1086 / 665830 .
  9. ^ Stephan Bauer: Restructuring of bonds according to the German Debt Securities Act . In: compact II / 2012, Esche Schümann Commichau .