Joint Ownership And Incomplete Contracts: The Case Of Perfectly Substitutable Investments
AbstractImportant 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 InfoArticle provided by LMU Munich School of Management in its journal Schmalenbach Business Review.
Volume (Year): 56 (2004)
Issue (Month): 1 (January)
Incomplete Contracts; Property Rights; Repeated Games.;
Other versions of this item:
- Rosenkranz, Stephanie & Schmitz, Patrick W., 2001. "Joint Ownership and Incomplete Contracts: The Case of Perfectly Substitutable Investments," CEPR Discussion Papers 2679, C.E.P.R. Discussion Papers.
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
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