Cooperative Investments and the Value of Contracting: Coase vs Williamson.

Several recent articles have shown that the efficient outcome for bilateral trade, even in the face of specific investments and incomplete contracting, can be supported with approximately-designed contracts. These studies have, for the most part, restricted attention to specific investments that benefit the investor (e.g., the seller's investment reduces her cost of producing the good). We find very different results for "cooperative" specific investments that directly benefit the investor's partner (e.g., the seller's investment improves the buyer's value of the good).