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Joint Ownership and Incomplete Contracts: The Case of Perfectly Substitutable Investments

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  • Rosenkranz, Stephanie
  • Schmitz, Patrick W.

Abstract

Prominent 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 in the case of perfectly substitutable investments these conclusions are still true in the 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

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2679.

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Date of creation: Feb 2001
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Handle: RePEc:cpr:ceprdp:2679

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Keywords: Incomplete Contracts; Joint Ownership;

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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, 2002. "Asset Ownership and Contractability of Interaction," Bonn Econ Discussion Papers bgse12_2002, University of Bonn, Germany, revised May 2003.
  3. Schmitz, Patrick W., 2008. "Joint ownership and the hold-up problem under asymmetric information," Economics Letters, Elsevier, vol. 99(3), pages 577-580, June.

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