Sequential Investments and Options to Own
AbstractContingent ownership structures are prevalent in joint ventures. We offer an explanation based on the investment incentives provided by such an arrangement. We consider a holdup problem in which two parties make relationship-specific investments sequentially to generate a joint surplus in the future. In our model, the following ownership structure implements first-best investments: one party owns the firm initially, while the other party has the option to buy the firm at a set price at a later date. This result is robust to the possibility of renegotiation and uncertainty.
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Bibliographic InfoArticle provided by The RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 29 (1998)
Issue (Month): 4 (Winter)
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Web page: http://www.rje.org
Other versions of this item:
- Nöldeke, Georg & Schmidt, Klaus M., 1998. "Sequential investments and options to own," Munich Reprints in Economics, University of Munich, Department of Economics 19327, University of Munich, Department of Economics.
- Nöldeke, Georg & Schmidt, Klaus M., 1997. "Sequential Investments and Options to Own," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1645, C.E.P.R. Discussion Papers.
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
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