Investment and Bargaining in Joint Ventures: A Family Decision-Making Experiment

Bilateral joint ventures, such as marriage, are economically inspired by their prospects of labor division and specialization. However, specialization makes the partner who invests more in relation-specific qualifications more exploitable (holdup problem). In a two-person experiment we study investment and bargaining behavior when specialization improves the chances to win a large prize. A low (full) joint venture relies on an intermediate (high) degree of specialization and low (high) costs in case of failure, e.g., a divorce. Results show that participants choose endogenously more efficient joint-venture types and accept minor attempts at exploitation when bargaining over the revenues of the joint venture.