Investment in Outside Options as Opportunistic Behavior: An Experimental Investigation

Hodaka Morita () and Maroš Servátka

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: We contribute to the theory of the firm by experimentally investigating a bilateral trade relationship in which standard theory assuming self-regarding preferences predicts that the seller will be better off by investing in the outside option to improve his bargaining position. The seller’s investment, however, might negatively affect the buyer’s other-regarding preferences if the investment is viewed as opportunistic. We find overall support for our hypotheses that arise from the link between other-regarding behavior and opportunism. In our experiment the seller can become worse off by investing, suggesting that costly solutions to opportunistic behavior such as vertical integration may be unnecessary.

Keywords: altruism; experiment; relationship-specific investment; opportunistic behavior; other-regarding preferences; outside option; theory of the firm (search for similar items in EconPapers)
JEL-codes: C91 L20 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2014-11-11
New Economics Papers: this item is included in nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://repec.canterbury.ac.nz/cbt/econwp/1431.pdf (application/pdf)

Related works:
Journal Article: Investment in Outside Options as Opportunistic Behavior: An Experimental Investigation (2018)
Working Paper: Investment in Outside Options as Opportunistic Behavior: An Experimental Investigation (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:cbt:econwp:14/31

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