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On the Relation between Asset Ownership and Specific Investments

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Author Info

  • Sonnemans, Joep
  • Oosterbeek, Hessel
  • Sloof, Randolp

Abstract

Experimental results are presented for a simplified version of Hart's (1995) theory of the firm. Theory predicts that investment levels remain constant when investors' no-trade pay-offs increase, if these pay-offs are threat points. While they may decrease when no-trade pay-offs are outside options. Our results support these predictions in a relative sense. Average investment levels exceed the predicted level. Actual investment behaviour is consistent with the outcomes of the bargaining stage. The play of the game is supported by a reciprocity mechanism in which non-investors consider higher investment levels as fair behaviour which deserves a reward. Investors anticipate this.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 111 (2001)
Issue (Month): 474 (October)
Pages: 791-820

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Handle: RePEc:ecj:econjl:v:111:y:2001:i:474:p:791-820

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Cited by:
  1. Mathias Erlei & Philipp Siemer, 2004. "Endogenous Property Rights in a Hold up-Experiment," TUC Working Papers in Economics 0002, Abteilung für Volkswirtschaftslehre, Technische Universität Clausthal (Department of Economics, Technical University Clausthal).
  2. Sloof, Randolph & Oosterbeek, Hessel & Riedl, Arno & Sonnemans, Joep, 2006. "Breach remedies, reliance and renegotiation," International Review of Law and Economics, Elsevier, vol. 26(3), pages 263-296, September.
  3. Sloof, Randolph, 2008. "Price-setting power vs. private information: An experimental evaluation of their impact on holdup," European Economic Review, Elsevier, vol. 52(3), pages 469-486, April.
  4. Ernst Fehr & Urs Fischbacher, . "Why Social Preferences Matter - The Impact of Non-Selfish Motives on Competition," IEW - Working Papers 084, Institute for Empirical Research in Economics - University of Zurich.
  5. Randolph Sloof, 2003. "Price-setting Power versus Private Information," Tinbergen Institute Discussion Papers 03-099/1, Tinbergen Institute.
  6. Sloof, Randolph & Sonnemans, Joep & Oosterbeek, Hessel, 2004. "Specific investments, holdup, and the outside option principle," European Economic Review, Elsevier, vol. 48(6), pages 1399-1410, December.
  7. Morita, Hodaka & Servátka, Maroš, 2013. "Group identity and relation-specific investment: An experimental investigation," European Economic Review, Elsevier, vol. 58(C), pages 95-109.
  8. Hessel Oosterbeek & Randolph Sloof & Joep Sonnemans, 2007. "Who should invest in specific training?," Journal of Population Economics, Springer, vol. 20(2), pages 329-357, April.
  9. Ernst Fehr & Urs Fischbacher & Elena Tougareva, . "Do High Stakes and Competition Undermine Fairness? Evidence from Russia," IEW - Working Papers 120, Institute for Empirical Research in Economics - University of Zurich.

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