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Information Gathering, Transaction Costs and the Property Rights Approach

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  • Schmitz, Patrick W.

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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  • Schmitz, Patrick W., 2005. "Information Gathering, Transaction Costs and the Property Rights Approach," CEPR Discussion Papers 5417, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:5417
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    More about this item

    Keywords

    Theory of the firm; Incomplete contracts; Ownership rights;
    All these keywords.

    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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