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Open AccessArticle

Reciprocity and Veto Power in Relation-Specific Investments: An Experimental Study

1
School of Management and Economics, University of Electronic Science and Technology of China, Chengdu 611731, China
2
Lingnan (University) College, Sun Yat-Sen University, Guangzhou 510275, China
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Authors to whom correspondence should be addressed.
Sustainability 2020, 12(10), 4027; https://doi.org/10.3390/su12104027
Received: 2 April 2020 / Revised: 7 May 2020 / Accepted: 11 May 2020 / Published: 14 May 2020
(This article belongs to the Section Economic and Business Aspects of Sustainability)
Relation-specific investments are usually associated with great risk. Investors, afraid of being held up, are likely to invest too little, endangering both financial and organizational sustainability. Theory suggests that relation-specific investment decisions are mainly affected by potential ex-post bargaining, while experimental evidence shows social-preference-driven thinking affects both investors’ and investees’ behavior. We decompose an experimental hold-up game to identify the effect of reciprocity and the effect of veto power on investees’ transfers. In addition, we investigate the effects of corresponding information disclosures on investors’ performance as possible behavioral remedies to the hold-up problem. We find strong evidence of the effect of reciprocity and reciprocity-related information significantly lower investors’ suboptimal investment. Investors underestimate the effect of reciprocity without related information disclosure. In contrast, we find little evidence of the effect of ex-post veto power on investment decisions. Our results imply that reciprocity-related information disclosure is helpful in promoting both financial and organizational sustainability. View Full-Text
Keywords: reciprocity; veto power; relation-specific investment; hold-up problem; experimental economics reciprocity; veto power; relation-specific investment; hold-up problem; experimental economics
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MDPI and ACS Style

Zheng, K.; Wang, X.; Ni, D.; Yang, Y. Reciprocity and Veto Power in Relation-Specific Investments: An Experimental Study. Sustainability 2020, 12, 4027.

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