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Does Group Identity Prevent Inefficient Investment in Outside Options? An Experimental Investigation

In: Experiments in Organizational Economics

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  • Hodaka Morita
  • Maroš Servátka

Abstract

Abstract We study whether group identity mitigates inefficiencies associated with appropriable quasi-rents, which are often created by relationship-specific investments in bilateral trade relationships. We conjecture that group identity strengthens the effect of an agent’s generous action in increasing his trade partner’s altruistic preferences, and this effect helps reduce incentives to undertake ex-post inefficient opportunistic behavior such as investment in an outside option. Our experimental results, however, do not support this conjecture, and contrast with our previous experimental findings that group identity mitigates distortions in ex-ante efficient relation-specific investment. We discuss a possible cause of the difference and its implications for the theory of the firm.

Suggested Citation

  • Hodaka Morita & Maroš Servátka, 2016. "Does Group Identity Prevent Inefficient Investment in Outside Options? An Experimental Investigation," Research in Experimental Economics,in: Experiments in Organizational Economics, volume 19, pages 105-126 Emerald Publishing Ltd.
  • Handle: RePEc:eme:rexezz:s0193-230620160000019010
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    Keywords

    Relation-specific investment; group identity; opportunistic behavior; other-regarding preferences; outside option; transaction cost economics; C91; D20; L20;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D20 - Microeconomics - - Production and Organizations - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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