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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. Prat, Andrea & Strömberg, David, 2005. "Commercial Television and Voter Information," CEPR Discussion Papers 4989, C.E.P.R. Discussion Papers.
  2. Anderlini, Luca & Felli, Leonardo, 2001. "Costly Bargaining and Renegotiation," Econometrica, Econometric Society, vol. 69(2), pages 377-411, March.
  3. Flinn, C.J., 1998. "Modes of Interaction Between Divorced Parents," Working Papers 98-04, C.V. Starr Center for Applied Economics, New York University.
  4. Banerjee, Abhijit & Cole, Shawn & Duflo, Esther & Linden, Leigh, 2006. "Remedying Education: Evidence from Two Randomized Experiments in India," CEPR Discussion Papers 5446, C.E.P.R. Discussion Papers.
  5. 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.
  6. Philippe Aghion & Mathias Dewatripont & Patrick Rey, 2004. "Transferable Control," Journal of the European Economic Association, MIT Press, vol. 2(1), pages 115-138, 03.
  7. Bester, Helmut, 2005. "Externalities, Communication and the Allocation of Decision Rights," CEPR Discussion Papers 5391, C.E.P.R. Discussion Papers.
  8. 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.
  9. Mark Duggan, 2000. "Hospital Ownership and Public Medical Spending," NBER Working Papers 7789, National Bureau of Economic Research, Inc.
  10. 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.
  11. Maija Halonen, 2002. "Reputation And The Allocation Of Ownership," Economic Journal, Royal Economic Society, vol. 112(481), pages 539-558, July.
  12. Fang,H. & Norman,P., 2003. "To bundle or not to bundle," Working papers 18, Wisconsin Madison - Social Systems.
  13. Raghuram G. Rajan & Luigi Zingales, 1997. "Power in a Theory of the Firm," NBER Working Papers 6274, National Bureau of Economic Research, Inc.
  14. Timothy Besley & Andrea Prat, 2005. "Handcuffs for the Grabbing Hand? Media Capture and Government Accountability," STICERD - Political Economy and Public Policy Paper Series 07, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  15. Imran Rasul, 2006. "The Economics of Child Custody," Economica, London School of Economics and Political Science, vol. 73(289), pages 1-25, 02.
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Cited by:
  1. Schmitz, Patrick W., 2013. "Public goods and the hold-up problem under asymmetric information," MPRA Paper 53717, University Library of Munich, Germany.
  2. 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.
  3. Böheim, René & Francesconi, Marco & Halla, Martin, 2012. "Does Custody Law Affect Family Behavior In and Out of Marriage?," IZA Discussion Papers 7064, Institute for the Study of Labor (IZA).
  4. Schmitz, Patrick W., 2012. "Incomplete contracts and optimal ownership of public goods," MPRA Paper 41730, University Library of Munich, Germany.
  5. Jaideep Roy & Prabal Roy Chowdhury, 2008. "Public-private partnerships in microfinance: Should NGO involvement be restricted?," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 08-11, Indian Statistical Institute, New Delhi, India.
  6. Halonen-Akatwijuka, Maija & Pafilis, Evagelos, 2014. "Location and ownership of public goods," Economics Letters, Elsevier, vol. 123(3), pages 395-397.
  7. Halonen-Akatwijuka, Maija, 2012. "Nature of human capital, technology and ownership of public goods," Journal of Public Economics, Elsevier, vol. 96(11), pages 939-945.
  8. Elisabetta Iossa & David Martimort, 2008. "The Simple Micro-Economics of Public-Private Partnerships," The Centre for Market and Public Organisation 08/199, Department of Economics, University of Bristol, UK.

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