Specific investments and coordination failures

Concepción Peñarrubia () and Gonzalo Olcina ()
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Concepción Peñarrubia: University of Valencia (Spain)

Economics Bulletin, 2002, vol. 3, issue 2, 1-7

Abstract: This note presents a new result on incomplete contracts. We show that if the different degrees of relation-specificity of the partnerts' investments determines their ex post bargaining position (what Williamson (1985) calls “the fundamental transformation”), it will appear a potential coordination failure. Under plausible conditions, the parties will coordinate in the more inefficient but less risky equilibrium, that is, in the risk-dominant equilibrium in the sense of Harsanyi and Selten (1988).

JEL-codes: C7 (search for similar items in EconPapers)
Date: 2002-02-18
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Citations: View citations in EconPapers (2)

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