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Incomplete contracts, joint ventures, and ownership restrictions

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  • Fan Cui

Abstract

This article allows for both sole-ownership enterprises and joint ventures as forms of integrated production organizations in an economic environment with contract incompleteness and relationship-specificity. When joint ventures are possible, the variable profit of integrated production organizations is always higher than that of outsourcing organizations. We then explore welfare effects of ownership restrictions imposed by a developing country (the South) with the assumption of no cash constraints. We show a decline in Southern welfare and world welfare. We then assume there are cash constraints on Southern agents and show that the equity share chosen by foreign agents is higher than the efficient level, in which case some degree of ownership restriction may improve the world welfare. However, if there is no international discipline on ownership restrictions, the ownership restriction level chosen by the Southern government tends to be overacted and will deteriorate the world welfare. Copyright 2011 Oxford University Press 2010 All rights reserved, Oxford University Press.

Suggested Citation

  • Fan Cui, 2011. "Incomplete contracts, joint ventures, and ownership restrictions," Oxford Economic Papers, Oxford University Press, vol. 63(2), pages 254-278, April.
    • Handle: RePEc:oup:oxecpp:v:63:y:2011:i:2:p:254-278
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    File URL: http://hdl.handle.net/10.1093/oep/gpq026
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    Cited by:

    1. Peter Eppinger & Hong Ma, 2023. "Optimal Ownership and Firm Performance: An Analysis of China’s FDI Liberalization," CESifo Working Paper Series 10551, CESifo.
    2. Valeria Gattai & Piergiovanna Natale, 2017. "A New Cinderella Story: Joint Ventures And The Property Rights Theory Of The Firm," Journal of Economic Surveys, Wiley Blackwell, vol. 31(1), pages 281-302, February.
    3. Eppinger, Peter & Kukharskyy, Bohdan, 2021. "Contracting institutions and firm integration around the world," European Economic Review, Elsevier, vol. 137(C).
    4. Charlie Joyez, 2019. "Shared Ownership in the International Make or Buy Dilemma," GREDEG Working Papers 2019-04, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    5. Charlie Joyez, 2017. "Firm heterogeneity and the integration trilemma: The utility of Joint ventures in integration versus outsourcing models," Working Papers DT/2017/09, DIAL (Développement, Institutions et Mondialisation).
    6. Valeria Gattai & Piergiovanna Natale, 2014. "Joint Ventures and the Property Rights Theory of the Firm: a Review of the Literature," Working Papers 287, University of Milano-Bicocca, Department of Economics, revised Dec 2014.

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