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

Hodaka Morita () and Maroš Servátka

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

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.

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 (search for similar items in EconPapers)
JEL-codes: C91 D20 L20 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2014-12-18
New Economics Papers: this item is included in nep-exp
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https://repec.canterbury.ac.nz/cbt/econwp/1433.pdf (application/pdf)

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Chapter: Does Group Identity Prevent Inefficient Investment in Outside Options? An Experimental Investigation (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:cbt:econwp:14/33

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