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Information and the Optimal Ownership Structure of Firms

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  • Matouschek, Niko
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    Abstract

    I develop a property rights theory of the firm in which managers bargain over the sharing of quasi-rents in the presence of private information. I analyse the interdependence between the ownership structure of firms and the bargaining inefficiency that is due to the presence of private information and derive the optimal ownership structure that minimizes the bargaining inefficiency. I first assume that managers can only contract over the ownership structure and show that they optimally choose one that minimizes (maximizes) their aggregate disagreement pay-off if the minimum expected quasi-rents are large (small). I then extend my analysis and allow the managers to contract over the ownership structure and the bargaining game that is played ex-post. I show that the main results continue to hold if and only if ownership structures are deterministic and cannot be made contingent on information that is revealed ex-post.

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    Bibliographic Info

    Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3216.

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    Date of creation: Feb 2002
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    Handle: RePEc:cpr:ceprdp:3216

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    Related research

    Keywords: bargaining inefficiency; private information; property rights; vertical integration;

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    References

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    1. Grossman, Sanford J & Hart, Oliver, 1985. "The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration," CEPR Discussion Papers 70, C.E.P.R. Discussion Papers.
    2. Mathias Dewatripont & Philippe Aghion & Patrick Rey, 1994. "Renegotiation design with unverifiable information," ULB Institutional Repository 2013/9591, ULB -- Universite Libre de Bruxelles.
    3. d'ASPREMONT, Claude & GERARD-VARET, Louis-André, . "Incentives and incomplete information," CORE Discussion Papers RP -354, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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    7. Chiu, Y Stephen, 1998. "Noncooperative Bargaining, Hostages, and Optimal Asset Ownership," American Economic Review, American Economic Association, vol. 88(4), pages 882-901, September.
    8. Oliver Hart & John Moore, 1998. "Cooperatives vs. Outside Ownership," STICERD - Theoretical Economics Paper Series 346, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    9. Hart, Oliver D. & Moore, John, 1990. "Property Rights and the Nature of the Firm," Scholarly Articles 3448675, Harvard University Department of Economics.
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    13. Myerson, Roger B, 1979. "Incentive Compatibility and the Bargaining Problem," Econometrica, Econometric Society, vol. 47(1), pages 61-73, January.
    14. Maija Halonen, 2002. "Reputation And The Allocation Of Ownership," Economic Journal, Royal Economic Society, vol. 112(481), pages 539-558, July.
    15. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1994. "Renegotiation Design with Unverifiable Information," Scholarly Articles 12375014, Harvard University Department of Economics.
    16. Cramton, Peter C & Tracy, Joseph S, 1992. "Strikes and Holdouts in Wage Bargaining: Theory and Data," American Economic Review, American Economic Association, vol. 82(1), pages 100-121, March.
    17. Kennan, John & Wilson, Robert, 1990. "Can Strategic Bargaining Models Explain Collective Bargaining Data?," American Economic Review, American Economic Association, vol. 80(2), pages 405-09, May.
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    Cited by:
    1. Garrouste, Pierre & Saussier, Stephane, 2005. "Looking for a theory of the firm: Future challenges," Journal of Economic Behavior & Organization, Elsevier, vol. 58(2), pages 178-199, October.
    2. Patrick W. Schmitz, 2006. "Information Gathering, Transaction Costs, and the Property Rights Approach," American Economic Review, American Economic Association, vol. 96(1), pages 422-434, March.

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