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Joint Ownership And Incomplete Contracts: The Case Of Perfectly Substitutable Investments

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  • Stephanie Rosenkranz
  • Patrick W. Schmitz

Abstract

Important results of the property rights approach based on incomplete contracts, as outlined by Hart (1995), say that all ownership structures lead to underinvestment and that joint ownership cannot be optimal, provided that investments are strategic complements and affect human capital only. We show that when only the total amount invested matters, these conclusions are still true in a static setting, even if investments are in physical capital. However, if the parties can invest and generate a surplus twice, then joint ownership may imply first-best investments in the first stage and can well be the optimal ownership structure.

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Bibliographic Info

Article provided by LMU Munich School of Management in its journal Schmalenbach Business Review.

Volume (Year): 56 (2004)
Issue (Month): 1 (January)
Pages: 72-89

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Handle: RePEc:sbr:abstra:v:56:y:2004:i:1:p:72-89

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Related research

Keywords: Incomplete Contracts; Property Rights; Repeated Games.;

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Cited by:
  1. Blonski, Matthias & Spagnolo, Giancarlo, 2002. "Relational Contracts and Property Rights," CEPR Discussion Papers 3460, C.E.P.R. Discussion Papers.
  2. Andreas Roider, 2004. "Asset Ownership and Contractibility of Interaction," RAND Journal of Economics, The RAND Corporation, vol. 35(4), pages 787-802, Winter.
  3. Gattai, Valeria & Natale, Piergiovanna, 2013. "What makes a joint venture: Micro-evidence from Sino-Italian contracts," Review of Financial Economics, Elsevier, vol. 22(4), pages 194-205.
  4. Schmitz, Patrick W., 2007. "Joint Ownership and the Hold-up Problem Under Asymmetric Information," CEPR Discussion Papers 6478, C.E.P.R. Discussion Papers.
  5. Vermeulen, E.P.M., 2005. "Network effects and regulatory competition," Discussion Paper 2005-028, Tilburg University, Tilburg Law and Economic Center.

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