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American Economic Review: Vol. 89 No. 1 (March 1999)
AER Volume. 89, Issue 1 | 
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Cooperative Investments and the Value of Contracting
Article Citation
Che, Yeon-Koo, and
Donald B. Hausch. 1999. "Cooperative Investments and the Value of Contracting."
American Economic Review,
89(1): 125-147.
DOI: 10.1257/aer.89.1.125
DOI: 10.1257/aer.89.1.125
Abstract
Recent articles have shown that contracts can support the efficient outcome for bilateral trade even in the face of specific investments and incomplete contracting. These studies typically considered 'selfish' investments that benefit the investor (e.g., the seller's investment reduces her production costs). The authors find very different results for 'cooperative' investments that directly benefit the investor's partner (e.g., the seller's investment improves the buyer's value of the good). Most importantly, if committing not to renegotiate the contract is impossible, then contracting has no value, i.e., the parties cannot do better than to abandon contracting altogether in favor of ex post negotiation.
Article Full-Text Access
Full-text Article
Authors
Che, Yeon-Koo (U WI)
Hausch, Donald B. (U WI)
Hausch, Donald B. (U WI)
JEL Classifications
L14: Transactional Relationships; Contracts and Reputation; Networks
C70: Game Theory and Bargaining Theory: General
J41: Labor Contracts
L22: Firm Organization and Market Structure
C70: Game Theory and Bargaining Theory: General
J41: Labor Contracts
L22: Firm Organization and Market Structure
