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Control Rights In Complex Partnerships

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  • Marco Francesconi
  • Abhinay Muthoo

Abstract

This paper develops a theory of the allocation of authority between two players who are in a “complex” partnership, that is, a partnership which produces impure public goods. We show that the optimal allocation depends on technological factors, the parties’ valuations of the goods produced, and the degree of impurity of these goods. When the degree of impurity is large, control rights should be given to the main investor, irrespective of preference considerations. There are some situations in which this allocation is optimal even if the degree of impurity is very low as long as one party’s investment is more important than the other party’s. If the parties’ investments are of similar importance and the degree of impurity is large, shared authority is optimal with a greater share going to the low-valuation party. If the importance of the parties’ investments is similar but the degree of impurity is neither large nor small, the low-valuation party should receive sole authority. We analyze an extension in which side payments are infeasible. We check for robustness of our results in several dimensions, such as allowing for multiple parties or for joint authority, apply our results to interpret a number of complex partnerships, including those involving schools and child custody. JEL Codes: D02 ; D23 ; H41 ; L31

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File URL: http://hdl.handle.net/10.1111/j.1542-4774.2011.01017.x
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Bibliographic Info

Article provided by European Economic Association in its journal Journal of the European Economic Association.

Volume (Year): 9 (2011)
Issue (Month): 3 (06)
Pages: 551-589

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Handle: RePEc:bla:jeurec:v:9:y:2011:i:3:p:551-589

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  1. Mathias Dewatripont & Philippe Aghion & Patrick Rey, 2004. "Transferable control," ULB Institutional Repository 2013/9647, ULB -- Universite Libre de Bruxelles.
  2. Mark G. Duggan, 2000. "Hospital Ownership And Public Medical Spending," The Quarterly Journal of Economics, MIT Press, vol. 115(4), pages 1343-1373, November.
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  4. Alejandra Mizala & Pilar Romaguera, 2000. "School Performance and Choice: The Chilean Experience," Journal of Human Resources, University of Wisconsin Press, vol. 35(2), pages 392-417.
  5. Helmut Bester, . "Externalities, Communication and the Allocation of Decision Rights," Papers 027, Departmental Working Papers.
  6. Abhijit Banerjee & Shawn Cole & Esther Duflo & Leigh Linden, 2005. "Remedying education: Evidence from two randomized experiments in india," Framed Field Experiments 00122, The Field Experiments Website.
  7. Martimort, David & Pouyet, Jérôme, 2006. "'Build It or Not': Normative and Positive Theories of Public-Private Partnerships," CEPR Discussion Papers 5610, C.E.P.R. Discussion Papers.
  8. Luca Anderlini & Leonardo Felli, 1998. "Costly bargaining and renegotiation," LSE Research Online Documents on Economics 3592, London School of Economics and Political Science, LSE Library.
  9. Maija Halonen-Akatwijuka & Evagelos Pafilis, 2009. "Reputation and Ownership of Public Goods," The Centre for Market and Public Organisation 09/211, Department of Economics, University of Bristol, UK.
  10. Prat, Andrea & Strömberg, David, 2005. "Commercial Television and Voter Information," CEPR Discussion Papers 4989, C.E.P.R. Discussion Papers.
  11. Timothy Besley & Andrea Prat, 2006. "Handcuffs for the Grabbing Hand? Media Capture and Government Accountability," American Economic Review, American Economic Association, vol. 96(3), pages 720-736, June.
  12. Imran Rasul, 2006. "The Economics of Child Custody," Economica, London School of Economics and Political Science, vol. 73(289), pages 1-25, 02.
  13. Raghuram G. Rajan & Luigi Zingales, . "Power in a Theory of the Firm," CRSP working papers 335, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  14. Flinn, C.J., 1998. "Modes of Interaction Between Divorced Parents," Working Papers 98-04, C.V. Starr Center for Applied Economics, New York University.
  15. Maija Halonen, 2002. "Reputation And The Allocation Of Ownership," Economic Journal, Royal Economic Society, vol. 112(481), pages 539-558, July.
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Cited by:
  1. Roy Chowdhury, Prabal & Roy, Jaideep, 2007. "Public-private Partnerships in Micro-finance: Should NGO Involvement be Restricted?," MPRA Paper 4469, University Library of Munich, Germany.
  2. Schmitz, Patrick W., 2013. "Public goods and the hold-up problem under asymmetric information," MPRA Paper 53717, University Library of Munich, Germany.
  3. Elisabetta Iossa & David Martimort, 2008. "The Simple Micro-Economics of Public-Private Partnerships," CEIS Research Paper 139, Tor Vergata University, CEIS, revised 15 Feb 2013.
  4. Schmitz, Patrick W., 2013. "Incomplete contracts and optimal ownership of public goods," Economics Letters, Elsevier, vol. 118(1), pages 94-96.
  5. Maija Halonen, 2010. "Nature of human capital, technology and ownership of public goods," The Centre for Market and Public Organisation 10/243, Department of Economics, University of Bristol, UK.
  6. René Böheim & Mario Francesconi & Martin Halla, 2012. "Does custody law affect family behavior in and out of marriage?," NRN working papers 2012-15, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
  7. Maija Halonen-Akatwijuka & Evagelos Pafilis, 2009. "Reputation and Ownership of Public Goods," The Centre for Market and Public Organisation 09/211, Department of Economics, University of Bristol, UK.

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