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

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Abstract

We study whether group identity helps mitigate inefficiencies associated with appropriable quasi-rents, which are often created by relationship-specific investments in bilateral trade relationships. Based on previous findings that group identity strengthens other-regarding preferences, we conjecture that group identity reduces agents’ incentives to undertake ex-post 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 the hold-up problem associated with distortion in relation-specific investment. We discuss a possible cause of the difference, and its implications for the theory of the firm.

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  • Hodaka Morita & Maroš Servátka, 2014. "Does Group Identity Prevent Inefficient Investment in Outside Options? An Experimental Investigation," Working Papers in Economics 14/33, University of Canterbury, Department of Economics and Finance.
    • Handle: RePEc:cbt:econwp:14/33
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    Cited by:

    1. Ďuriník, Michal & Morita, Hodaka & Servátka, Maroš & Zhang, Le, 2023. "Promotions and Group Identity," MPRA Paper 119389, University Library of Munich, Germany.
    2. Li, Sherry Xin & de Oliveira, Angela C.M. & Eckel, Catherine, 2017. "Common identity and the voluntary provision of public goods: An experimental investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 142(C), pages 32-46.

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    More about this item

    Keywords

    altruism; appropriable quasi-rents; experiment; relation-specific investment; group identity; opportunistic behavior; other-regarding preferences; outside option; theory of the firm; transaction cost economics;
    All these keywords.

    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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