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Information Gathering, Transaction Costs and the Property Rights Approach

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Author Info
Schmitz, Patrick W.

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Abstract

The property rights approach to the theory of the firm suggests that ownership structures are chosen in order to provide ex ante investment incentives, while bargaining is ex post efficient. In contrast, transaction cost economics emphasizes ex post inefficiencies. In the present paper, a party may invest and acquire private information about the default payoff that it can realize on its own. Inefficient rent-seeking can overturn prominent implications of the property rights theory. In particular, ownership by party B may be optimal, even though only the indispensable party A makes an investment decision.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5417.

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Date of creation: Dec 2005
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Handle: RePEc:cpr:ceprdp:5417

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Related research
Keywords: incomplete contracts; ownership rights; theory of the firm;

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Find related papers by JEL classification:
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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References listed on IDEAS
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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. Macchiavello, Rocco, 2007. "Financial Constraints and the Costs and Benefits of Vertical Integration," CEPR Discussion Papers 6104, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. Schmitz, Patrick W., 2008. "Information Gathering and the Hold-Up Problem in a Complete Contracting Framework," CEPR Discussion Papers 6988, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Schmitz, Patrick W., 2001. "The Hold-Up Problem and Incomplete Contracts: A Survey of Recent Topics in Contract Theory," MPRA Paper 12562, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  4. Schmitz, Patrick W., 2007. "Incomplete Contracts, the Hold-Up Problem and Asymmetric Information," CEPR Discussion Papers 6322, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  5. Hoppe, Eva I. & Schmitz, Patrick W., 2008. "Public Versus Private Ownership: Quantity Contracts and the Allocation of Investment Tasks," CEPR Discussion Papers 7056, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  6. Schmitz, Patrick W., 2007. "Joint Ownership and the Hold-up Problem Under Asymmetric Information," CEPR Discussion Papers 6478, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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