Incomplete Contracts Incentivize Efficient Investments to Avoid Unfavorable Bargaining Outcomes
The article explores how incomplete contracts lead to negotiation issues when people invest in specific relationships. It investigates how different people's preferences impact these negotiations when their preferences are secret. The study suggests that hidden investment costs can show preferences and impact the bargaining process, resulting in better negotiation outcomes to keep preferences hidden. By identifying all possible scenarios and conditions under which it is best to invest and trade efficiently, the research shows that secrecy in preferences can create powerful incentives for smart investments in relationships to achieve positive results.