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Relational Contracts and Property Rights

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Author Info
Blonski, Matthias
Spagnolo, Giancarlo

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Abstract

We propose a general framework for analyzing and comparing ownership structures with respect to creating incentives for co-operative behavior (e.g. efficient investment) in long-run relationships. We generalize models by Garvey (1995), Halonen (2002), and Baker, Gibbons and Murphy (2002) and compare their results in the light of our theory, going in depth into the issue of renegotiation of ownership and strategies. We show that when agents are not restricted in their strategy choice, the short–term efficient ownership structure identified by Hart and Moore (1990) is not relational efficient — i.e. does not maximize the set of discount factors under which efficient investment can be supported in equilibrium of the repeated game. Moreover, the relational efficient ownership structure is independent of what can be renegotiated: ownership, strategies, both or none.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3460.

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Date of creation: Jul 2002
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Handle: RePEc:cpr:ceprdp:3460

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Related research
Keywords: implicit contracts; incomplete contracts; non-contractual relations; ownership structures; supply relations; theory of the firm; vertical integration;

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Find related papers by 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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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  2. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-58, December. [Downloadable!] (restricted)
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  3. Taylor, Curtis R & Wiggins, Steven N, 1997. "Competition or Compensation: Supplier Incentives under the American and Japanese Subcontracting Systems," American Economic Review, American Economic Association, vol. 87(4), pages 598-618, September. [Downloadable!] (restricted)
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  5. Holmstrom, Bengt & Roberts, John, 1998. "The Boundaries of the Firm Revisited," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 73-94, Fall. [Downloadable!] (restricted)
  6. 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. [Downloadable!] (restricted)
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  7. George Baker & Robert Gibbons & Kevin J. Murphy, 2002. "Relational Contracts And The Theory Of The Firm," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 39-84, February. [Downloadable!] (restricted)
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  18. Farrell, Joseph & Maskin, Eric, 1989. "Renegotiation in repeated games," Games and Economic Behavior, Elsevier, vol. 1(4), pages 327-360, December. [Downloadable!] (restricted)
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  19. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law & Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
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  24. Maija Halonen, 2002. "Reputation And The Allocation Of Ownership," Economic Journal, Royal Economic Society, vol. 112(481), pages 539-558, July. [Downloadable!] (restricted)
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  27. Brown, Martin & Falk, Armin & Fehr, Ernst, 2002. "Contractual Incompleteness and the Nature of Market Interactions," CEPR Discussion Papers 3272, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Elisabetta Iossa & Giancarlo Spagnolo, 2009. "Contracts as Threats: on a Rationale For Rewarding A while Hoping For B," CEIS Research Paper 147, Tor Vergata University, CEIS, revised 30 Sep 2009. [Downloadable!]
  2. Crémer, Jacques & Khalil, Fahad, 1991. "Gathering Information before Signing a Contract," IDEI Working Papers 5, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
    Other versions:
  3. Sebastian Kranz & Susanne Ohlendorf, 2009. "Renegotiation-Proof Relational Contracts with Side Payments," Discussion Papers 259, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
  4. Giovannetti, E. & Neuhoff, K. & Spagnolo, G., 2005. "Agglomeration in Internet Co-operation Peering Agreements," Cambridge Working Papers in Economics 0505, Faculty of Economics, University of Cambridge. [Downloadable!]
  5. Christian A. Ruzzier, 2009. "Asset Specificity and Vertical Integration: Williamson’s Hypothesis Reconsidered," Harvard Business School Working Papers 09-119, Harvard Business School. [Downloadable!]
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