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Criteria for selfish and cooperative relation-specific investments distinction

Criteria for selfish and cooperative relation-specific investments distinction

Journal of Institutional studies, , Vol. 6 (no.4),
p. 65-76

Since mid-seventies the «hold-up» problem caused the underinvestment in specific assets has been remaining a key issue in neo-institutional economics. The traditional theoretical analysis of «hold-up» problem was based on consideration of so-called «selfish» relation- specific investments. Another type of relation-specific investments called «cooperative» investments (or cross investments) was nearly absent in economic analysis up to the very end of the twentieth century despite of the fact that such investments are widespread.
The distinction between selfish and cooperative relation-specific investments introduced in (Che and Hausch, 1999) based on the direction of specific investments effects in the internal trade (i.e. trade between main partners). The paper proposes an alternative approach to the classification of relation-specific investments, which is relied on the directions of these effects in the external trade (i.e. trade with alternative partners). This approach can be fruitful not only for theoretical modelling, but also for the antitrust regulation.

Keywords: relation-specific investments; selfish relation-specific investments; cooperative relation-specific investments; outside options; bargaining power

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