Exclusive contracts foster relationship‐specific investment

Exclusive contracts prohibit one or both parties from trading with anyone else. Contrary to earlier findings, we show that investments that are specific to the contracting parties may be encouraged by exclusivity. Results depend on the nature of investments and the bargaining solution. The major part of the analysis shows that exclusivity deals designed to “assure” the supply of essential inputs promote investment. Infinite penalties for breach, even if ex post renegotiable, may result in excessive investment, in which case a positive but finite damage payment yields the first‐best outcome.     

Optimal Vertical Arrangements When Resale Is Possible

This paper pinpoints optimal vertical arrangements in settingscharacterized by incomplete contracting and resale of an intermediateinput (a "widget"). In the Grossman-Hart-Moore property rightstheory, we conclude that sometimes strictly complementary assetsshould be owned separately to permit the emergence of a secondarymarket. In a richer model where the parties choose specificand nonspecific investments, vertical separation may also dominatejoint ownership. The article then examines the profitabilityof three integration forms when the proposed bargaining modelsubstitutes random-order values (e.g., the Shapley value). Theconclusions differ markedly from existing claims. (JEL C70,C78, D23, L42)     

Procedural invariance as a result of commitment costs: evidence from an economic experiment on farmers’ willingness to pay for digestate

We offer a conceptual explanation for some of the procedural invariance witnessed in experimental studies related to the concept of commitment costs, which is confirmed in a field experiment with Sicilian farmers valuing a renewable soil conditioner.     

Assessing experiential augmentation of the environment in the valuation of wine: Evidence from an economic experiment in Mt. Etna,Italy

In this study, we conducted an experimental auction to determine the impacts that “experiential augmentation,” a phenomenon in which a physical location impacts decision‐making, has on consumers’ willingness to pay (WTP) for wine. The experiment elicited subjects’ valuation under experiential augmentation conditions for three types of wine grown in the Mt. Etna area in Sicily, Italy. Our findings indicate that experiential augmentation increased consumers’ WTP for wine. Our results suggest that experiential marketing practices explicitly related to the environment where the wine is produced and consumed can lead to increased valuation for wine.