Suppose a new contracting environment that requires less specialized investments is considered.This new contract will result in:
A) an increase in the marginal benefit and a longer optimal contract.
B) an increase in the marginal benefit and a shorter optimal contract.
C) a decrease in the marginal benefit and a longer optimal contract.
D) a decrease in the marginal benefit and a shorter optimal contract.

Question

Quizplus · Accepted Answer

Less specialized investments reduce the marginal benefit of maintaining a long-term contract, leading to a shorter optimal contract duration.

Suppose a New Contracting Environment That Requires Less Specialized Investments