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Behavioral uncertainty and investments in cooperative relationships

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  • Rudolf Vetschera

    (University of Vienna, Vienna, Austria)

Abstract

We study a cooperative relationship between two economic agents, in which one agent can make investments in the relationship to reduce the probability that the other agent defects. The probability of defection is derived from an incomplete information decision model of the transaction partner. We show that the relationship between investment and probability of defection depends on the type of uncertainty considered and analyze the effects of parameter changes on the optimal level of investment. Copyright © 2004 John Wiley & Sons, Ltd.

Suggested Citation

  • Rudolf Vetschera, 2004. "Behavioral uncertainty and investments in cooperative relationships," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 25(1), pages 17-27.
    • Handle: RePEc:wly:mgtdec:v:25:y:2004:i:1:p:17-27
    DOI: 10.1002/mde.1131
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    References listed on IDEAS

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    Cited by:

    1. Rudolf Vetschera, 2007. "Response to Tularam and Soomro," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 77-78.

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