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Does Asset Ownership Always Motivate Managers? Outside Options and the Property Rights Theory of the Firm

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  • David de Meza
  • Ben Lockwood

Abstract

This paper studies the Grossman-Hart-Moore (GHM) "property rights" approach to the theory of the firm under alternating-offers bargaining. When managers can pursue other occupations while negotiating over the division of the gains from cooperation, the GHM results obtain. If taking the best alternative job terminates bargaining, outcomes are very different. Sometimes an agent with an important investment decision should not own the assets he works with; sometimes independent assets should be owned together; sometimes strictly complementary assets should be owned separately.

Suggested Citation

  • David de Meza & Ben Lockwood, 1998. "Does Asset Ownership Always Motivate Managers? Outside Options and the Property Rights Theory of the Firm," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(2), pages 361-386.
    • Handle: RePEc:oup:qjecon:v:113:y:1998:i:2:p:361-386.
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    File URL: http://hdl.handle.net/10.1162/003355398555621
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