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Behavioral uncertainty and investments in cooperative relationships
Author(s) -
Vetschera Rudolf
Publication year - 2003
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.1131
Subject(s) - investment (military) , microeconomics , database transaction , economics , complete information , transaction cost , econometrics , mathematical economics , computer science , politics , political science , law , programming language
We study a cooperative relationship between two economic agents, in which one agent can make investments in the relationship to reduce the probability that the other agent defects. The probability of defection is derived from an incomplete information decision model of the transaction partner. We show that the relationship between investment and probability of defection depends on the type of uncertainty considered and analyze the effects of parameter changes on the optimal level of investment. Copyright © 2004 John Wiley & Sons, Ltd.