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Information revelation in the Property Right Theory of the firms

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  • Su, Alice Peng-Ju

Abstract

I incorporate revelation of asymmetric information through shared ownership (partnership) into the Property Right Theory of the firms. Shared ownership is optimal as a joint result of mitigating hold-up and inducing truthful information revelation. Due to the incomplete contracting nature, shared ownership is incentive compatible if it induces truthful information revelation within the relationship as well as when the relationship breaks. Off-the-equilibrium-path incentive compatibility results in the optimality of partnership even for the most efficient type of the informed party. Inefficient investment thus arises. The level of shared ownership depends on the relative magnitude of the information rent effect and the hold-up effect. Shared ownership is robust to semi-truthful information revelation, under which hold-up occurs in equilibrium with an endogenously determined probability related to the revelation strategy.

Suggested Citation

  • Su, Alice Peng-Ju, 2017. "Information revelation in the Property Right Theory of the firms," International Journal of Industrial Organization, Elsevier, vol. 52(C), pages 133-164.
    • Handle: RePEc:eee:indorg:v:52:y:2017:i:c:p:133-164
    DOI: 10.1016/j.ijindorg.2017.02.004
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    Cited by:

    1. Schmitz, Patrick W., 2021. "On the optimality of outsourcing when vertical integration can mitigate information asymmetries," Economics Letters, Elsevier, vol. 202(C).
    2. Schmitz, Patrick W., 2017. "Incomplete contracts, shared ownership, and investment incentives," Journal of Economic Behavior & Organization, Elsevier, vol. 144(C), pages 153-165.
    3. Patrick W Schmitz, 2022. "How (Not) to Purchase Novel Goods and Services: Specific Performance Versus at-will Contracts," The Economic Journal, Royal Economic Society, vol. 132(647), pages 2563-2577.
    4. Schmitz, Patrick W., 2021. "Optimal ownership of public goods under asymmetric information," Journal of Public Economics, Elsevier, vol. 198(C).
    5. Schmitz, Patrick W., 2020. "Moral hazard and the property rights approach to the theory of the firm," Economics Letters, Elsevier, vol. 186(C).
    6. Schmitz, Patrick W., 2017. "Asymmetric information and the property rights approach to the theory of the firm," Economics Letters, Elsevier, vol. 159(C), pages 96-99.
    7. Schmitz, Patrick W., 2021. "Contracting under adverse selection: Certifiable vs. uncertifiable information," Journal of Economic Behavior & Organization, Elsevier, vol. 182(C), pages 100-112.
    8. Schmitz, Patrick W., 2023. "Completely relationship-specific investments, transaction costs, and the property rights theory," Economics Letters, Elsevier, vol. 226(C).
    9. Schmitz, Patrick W., 2023. "The proper scope of government reconsidered: Asymmetric information and incentive contracts," European Economic Review, Elsevier, vol. 157(C).

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    More about this item

    Keywords

    Information revelation; Hold-up; Property Right Theory; Shared ownership;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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