On the Relation between Asset Ownership and Specific Investments

Joep Sonnemans (), Hessel Oosterbeek and Randolph Sloof

Economic Journal, 2001, vol. 111, issue 474, 791-820

Abstract: Experimental results are presented for a simplified version of Hart's (1995) theory of the firm. Theory predicts that investment levels remain constant when investors' no-trade pay-offs increase, if these pay-offs are threat points. While they may decrease when no-trade pay-offs are outside options. Our results support these predictions in a relative sense. Average investment levels exceed the predicted level. Actual investment behaviour is consistent with the outcomes of the bargaining stage. The play of the game is supported by a reciprocity mechanism in which non-investors consider higher investment levels as fair behaviour which deserves a reward. Investors anticipate this.

Date: 2001
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