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Investment and Bargaining in Joint Ventures: A Family Decision Making Experiment

  • Werner Güth
  • Radosveta Ivanova-Stenzel
  • Matthias Sutter
  • Hannelore Weck-Hannemann

Bilateral joint ventures, such as marriage, are economically inspired by their prospects of labor division and specialization. However, specialization makes the partnerwho investsmore in relation-specificqualificationsmore exploitable (holdup problem). In a two-person experiment we study investment and bargaining behavior when specialization improves the chances to win a large prize. A low (full) joint venture relies on an intermediate (high) degree of specialization and low (high) costs in case of failure, e.g., a divorce. Results show that participants choose endogenouslymore efficient joint-venture types and acceptminor attempts at exploitation when bargaining over the revenues of the joint venture.

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Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 159 (2003)
Issue (Month): 2 (June)
Pages: 323-

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200306)159:2_323:iabijv_2.0.tx_2-r
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