A decrease in the marginal benefit arising from a specialized investment will cause the optimal contract length to:
A) increase.
B) decrease.
C) remain constant.
D) either increase or decrease.

Question

Quizplus · Accepted Answer

A decrease in the marginal benefit arising from a specialized investment implies that the investment becomes less profitable. Therefore, the parties involved will have less incentive to maintain a long-term relationship, and the optimal contract length will decrease.

A Decrease in the Marginal Benefit Arising from a Specialized