Cooperative Investment and the Value of Contracting with Transaction Costs
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James Vercammen
Bilateral exchange and asset specific investments are becoming increasingly common as agricultural markets continue to industrialize and become vertical coordinated. The extent that well-designed contracts can prevent investment “holdup” in bilateral exchange situations has been examined extensively in the general economics literature. Che and Hausch (1999) established the strong result that contracts have no value if the relationship specific investment is purely cooperative and if the contracting parties cannot commit to not renegotiate the contract ex post. In this paper, it is shown that contracts are generally valuable in a Che and Hausch environment if information between the seller and buyer is asymmetric and there is a cost to eliminating this asymmetry.
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
Articles in the same Issue
- Article
- Cooperative Investment and the Value of Contracting with Transaction Costs
- Tough Love: Optimal Enforcement of Output Quotas in the Presence of Cheating
- Pricing-to-Market versus Residual Demand Elasticity Analysis of Imperfect Competition in Food Exports: Evidence from Germany
- Food Supply Management and Tariffication: A Game Theoretic Approach
- Social Welfare and the Market Power-Efficiency Tradeoff in U.S. Food Processing: A Note
- The Gains and Losses from Agricultural Concentration: A Critical Survey of the Literature
- Explaining Plant Exit in the U.S. Meat and Poultry Industries
- Contract Design: A Note on Cash Settled Futures
- Explaining Price Dispersion for Homogeneous Grocery Products
- An Essay on Cooperative Bargaining in U.S. Agricultural Markets
- Costly (Dis)Agreement: Optimal Intervention, Income Redistribution, and Transfer Efficiency of Output Quotas in the Presence of Cheating
- Inventory Constraints in a Dynamic Model of Imperfect Competition: An Application to Beef Packing
- Some Unintended Consequences of TRQ Liberalization
- Information Pooling and Collusion: Implications for The Livestock Mandatory Reporting Act
- Concentration and Innovation in the U.S. Food Industries
- Vertical Product Differentiation in Theory and Practice
- Agricultural Marketing Institutions: A Response to Quality Disputes
Articles in the same Issue
- Article
- Cooperative Investment and the Value of Contracting with Transaction Costs
- Tough Love: Optimal Enforcement of Output Quotas in the Presence of Cheating
- Pricing-to-Market versus Residual Demand Elasticity Analysis of Imperfect Competition in Food Exports: Evidence from Germany
- Food Supply Management and Tariffication: A Game Theoretic Approach
- Social Welfare and the Market Power-Efficiency Tradeoff in U.S. Food Processing: A Note
- The Gains and Losses from Agricultural Concentration: A Critical Survey of the Literature
- Explaining Plant Exit in the U.S. Meat and Poultry Industries
- Contract Design: A Note on Cash Settled Futures
- Explaining Price Dispersion for Homogeneous Grocery Products
- An Essay on Cooperative Bargaining in U.S. Agricultural Markets
- Costly (Dis)Agreement: Optimal Intervention, Income Redistribution, and Transfer Efficiency of Output Quotas in the Presence of Cheating
- Inventory Constraints in a Dynamic Model of Imperfect Competition: An Application to Beef Packing
- Some Unintended Consequences of TRQ Liberalization
- Information Pooling and Collusion: Implications for The Livestock Mandatory Reporting Act
- Concentration and Innovation in the U.S. Food Industries
- Vertical Product Differentiation in Theory and Practice
- Agricultural Marketing Institutions: A Response to Quality Disputes
