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Cooperative Investment and the Value of Contracting with Transaction Costs

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  • Vercammen James

    (Agricultural Sciences and Commerce and Business Administration, University of British Columbia, Vancouver, Canada)

Abstract

Bilateral exchange and asset specific investments are becoming increasingly common as agricultural markets continue to industrialize and become vertical coordinated. The extent that well-designed contracts can prevent investment "holdup" in bilateral exchange situations has been examined extensively in the general economics literature. Che and Hausch (1999) established the strong result that contracts have no value if the relationship specific investment is purely cooperative and if the contracting parties cannot commit to not renegotiate the contract ex post. In this paper, it is shown that contracts are generally valuable in a Che and Hausch environment if information between the seller and buyer is asymmetric and there is a cost to eliminating this asymmetry.

Suggested Citation

  • Vercammen James, 2002. "Cooperative Investment and the Value of Contracting with Transaction Costs," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 1(1), pages 1-14, September.
    • Handle: RePEc:bpj:bjafio:v:1:y:2002:i:1:n:1
    DOI: 10.2202/1542-0485.1000
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    References listed on IDEAS

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    1. Vercammen, James & Schmitz, Andrew, 2001. "Marketing and distribution: Theory and statistical measurement," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 20, pages 1137-1181, Elsevier.
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    5. Yeon-Koo Che & Tai-Yeong Chung, 1999. "Contract Damages and Cooperative Investments," RAND Journal of Economics, The RAND Corporation, vol. 30(1), pages 84-105, Spring.
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    7. Donald B. Hausch & Yeon-Koo Che, 1999. "Cooperative Investments and the Value of Contracting," American Economic Review, American Economic Association, vol. 89(1), pages 125-147, March.
    8. Nöldeke, Georg & Schmidt, Klaus M., 1995. "Option contracts and renegotiation," Munich Reprints in Economics 19329, University of Munich, Department of Economics.
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