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Joint Ownership of Production Projects as a Commitment Device against Interest Groups

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  • Nicoletta Berardi
  • Paul Seabright

Abstract

This paper investigates an unexplored rationale for joint ownership of a production project. We model projects with autocorrelated productivity shocks as creating an option value of investing over time so that later investments benefit from the information revealed by the realization of earlier investments. However, internal and external interest groups may pressurize owners into paying out early revenues. Joint ownership provides a commitment mechanism against them, thereby enabling more efficient levels of investment. The Business Environment and Enterprises Performance survey data corroborate the model's prediction that organizations under interest-group lobbying pressure are more likely to choose joint ownership.

Suggested Citation

  • Nicoletta Berardi & Paul Seabright, 2020. "Joint Ownership of Production Projects as a Commitment Device against Interest Groups," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 176(3), pages 572-594.
    • Handle: RePEc:mhr:jinste:urn:doi:10.1628/jite-2020-0027
    DOI: 10.1628/jite-2020-0027
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    More about this item

    Keywords

    commitment mechanism; joint ownership; joint venture; lobbying; interest group;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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