Question

Other things being equal, the optimal life of a contract become shorter when:

• specialized investments become less important.

• spot markets become less efficient.

• the marginal cost of preparing a contract increases more slowly as the life of the contract is extended.

• the marginal benefit associated with preparing a contract increases.

• the contracting environment becomes less complex.

Answer 1

• specialized investments become less important.

Explanation: When it is no more important to make specialized investments, optimal life of a contract becomes shorter.