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Appropriability, Investment Incentives and the Property Rights Theory of the Firm

Author

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  • David de Meza
  • Ben Lockwood

Abstract

This paper examines the property rights theory of the firm when a manager's relationship-specific investment can be partially appropriated by the owner of an asset when cooperation breaks down. For example ownership typically confers the right to continue with a project even should the production team dissolve. The investments of non-owners may then be devalued, but are seldom wholly loss to the owner. With such spillovers, the outside-option principle can be incorporated into the Grossman-Hart-Moore framework without implying that ownership demotivates. Enriched predictions on the determinants of integration emerge.

Suggested Citation

  • David de Meza & Ben Lockwood, 2003. "Appropriability, Investment Incentives and the Property Rights Theory of the Firm," The Centre for Market and Public Organisation 03/068, The Centre for Market and Public Organisation, University of Bristol, UK.
  • Handle: RePEc:bri:cmpowp:03/068
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    File URL: http://www.bris.ac.uk/Depts/CMPO/workingpapers/wp68.pdf
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    Cited by:

    1. Tobias Regner & Maija Halonen-Akatwijuka, 2004. "Digital Technology And The Allocation Of Ownership In The Music Industry," Royal Economic Society Annual Conference 2004 54, Royal Economic Society.
    2. Hiroshi Osano, 2011. "Partial Ownership and Strategic Alliances with Reallocation of Corporate Resources," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 167(2), pages 202-223, June.

    More about this item

    Keywords

    theory of the firm;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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