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Behavioral uncertainty and investments in cooperative relationships

✍ Scribed by Rudolf Vetschera

Publisher
John Wiley and Sons
Year
2003
Tongue
English
Weight
156 KB
Volume
25
Category
Article
ISSN
0143-6570

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✦ Synopsis

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 Β© 2004 John Wiley & Sons, Ltd.

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## Abstract Modelling of behavioural uncertainty has been a concern for researchers for some time. This paper briefly reviews modelling related to uncertainty and the focuses on the model presented by Vetschera (2004). A model of decision behaviour has been developed in the paper with regard to inv