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Cooperative Investments and the Value of Contracting

Author

Listed:
  • Che, Y.K.
  • Hausch, D.B.
Abstract
Several recent articles have shown that the efficient outcome for bilateral trade, even in the face of specific investments and incomplete contracting, can be supported with appropriately-designed contracts. These studies have, for the most part, restricted attention to so called "selfish" investments that benefit the investor (e.g., the seller's investment reduces her cost of producing the good). We 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). If the parties can commit not to renegotiate, schemes exist that can achieve the efficient outcome as a subgame perfect equilibrium.

Suggested Citation

  • Che, Y.K. & Hausch, D.B., 1997. "Cooperative Investments and the Value of Contracting," Working papers 9714, Wisconsin Madison - Social Systems.
    • Handle: RePEc:att:wimass:9714
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    TRADE ; INVESTMENTS;

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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