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| Concepción Peñarrubia and Gonzalo Olcina |
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| ''Specific investments and coordination failures'' |
| ( 2002, Vol. 3 No.2 ) |
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| 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). |
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| Manuscript Received : Nov 20 2001 | | Manuscript Accepted : Feb 18 2002 |
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