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Contracting Institutions and Ownership Structure in International Joint Ventures

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  • Ari Van Assche

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  • Galina A. Schwartz
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    Abstract

    This paper examines the role of contracting institutions on a multinational firm's optimal ownership strategy. We develop a model in which both a multinational firm and its local joint venture partner can ex post engage in costly rent-seeking actions to increase their ex ante agreed upon revenue share. We show that the host country's level of contract enforcement and level of judicial favoritism affect the parties' incentives to contribute to the international joint venture. The model allows us to identify testable hypotheses relating these institutional features with the performance and optimal ownership structure of international joint ventures.

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    Bibliographic Info

    Paper provided by CIRANO in its series CIRANO Working Papers with number 2013s-04.

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    Date of creation: 01 Feb 2013
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    Handle: RePEc:cir:cirwor:2013s-04

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    Keywords: international joint venture; ownership structure; institutions; contract enforcement; judicial favoritism;

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    Cited by:
    1. Latzer, Hélène, 2013. "Bridging the technology gap with limited human capital resources," Economic Modelling, Elsevier, vol. 35(C), pages 175-184.

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