Joint Ventures as a Commitment Device Against Lobbies
AbstractThis paper investigates a hitherto unexplored rationale for firms to enter into joint ventures. We model risky projects with autocorrelated productivity shocks as creating an option value of investing over time so that later investments benefit from the information revealed by the realization of earlier investments. However, internal and external lobbies are likely to pressurize owners into paying out early revenues from such investments precisely when the autocorrelation of productivity implies they should be reinvesting them in the project. Joint ventures provide a commitment mechanism against lobbies, thereby enabling more efficient levels of investment. We present some case study evidence that this rationale for entering into joint ventures is especially relevant in the context of infrastructure projects in developing countries, though other contexts such as pharmaceuticals are also favorable to the phenomenon. We also find that Business Environment and Enterprises Performance survey data corroborate the model's prediction that organizations under conditions favorable to internal or external lobbying pressure are more likely than other firms to choose joint ventures as their corporate governance structure.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7714.
Date of creation: Feb 2010
Date of revision:
Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
Find related papers by JEL classification:
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
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.:
- Jerry A. Hausman & Gregory K. Leonard & Jean Tirole, 2003.
"On Non-Exclusive Membership in Competing Joint Ventures,"
Levine's Working Paper Archive
506439000000000145, David K. Levine.
- Hausman, Jerry A & Leonard, Gregory K & Tirole, Jean, 2003. " On Nonexclusive Membership in Competing Joint Ventures," RAND Journal of Economics, The RAND Corporation, vol. 34(1), pages 43-62, Spring.
- Hauswald, Robert & Hege, Ulrich, 2003.
"Ownership and Control in Joint Ventures: Theory and Evidence,"
CEPR Discussion Papers
4056, C.E.P.R. Discussion Papers.
- HEGE, Ulrich & HAUSWALD, Robert, 2002. "Ownership and control in joint ventures: theory and evidence," Les Cahiers de Recherche 750, HEC Paris.
- Inderst, Roman & Wey, Christian, 2003.
" Bargaining, Mergers, and Technology Choice in Bilaterally Oligopolistic Industries,"
RAND Journal of Economics,
The RAND Corporation, vol. 34(1), pages 1-19, Spring.
- Roman Inderst & Christian Wey, 2001. "Bargaining, Mergers, and Technology Choice in Bilaterally Oligopolistic Industries," CIG Working Papers FS IV 01-19, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
- Inderst, Roman & Wey, Christian, 2001. "Bargaining, Mergers and Technology Choice in Bilaterally Oligopolistic Industries," CEPR Discussion Papers 2981, C.E.P.R. Discussion Papers.
- Cai, Hongbin, 2003. " A Theory of Joint Asset Ownership," RAND Journal of Economics, The RAND Corporation, vol. 34(1), pages 63-77, Spring.
- Stefano Comino & Antonio Nicolò & Piero Tedeschi, 2005.
"Termination Clauses in Partnerships,"
- Jeffrey J. Reimer, 2006. "Vertical Integration in the Pork Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(1), pages 234-248.
- Maija Halonen, 2002. "Reputation And The Allocation Of Ownership," Economic Journal, Royal Economic Society, vol. 112(481), pages 539-558, July.
- Hideshi Itoh & Hodaka Morita, 2006. "Formal Contracts, Relational Contracts, and the Holdup Problem," CESifo Working Paper Series 1786, CESifo Group Munich.
- Andreas Roider, 2004.
"Asset Ownership and Contractibility of Interaction,"
RAND Journal of Economics,
The RAND Corporation, vol. 35(4), pages 787-802, Winter.
- Andreas Roider, 2002. "Asset Ownership and Contractability of Interaction," Bonn Econ Discussion Papers bgse12_2002, University of Bonn, Germany, revised May 2003.
- Iavor Marangozov, 2005. "Characteristics of the International Joint Ventures in Bulgaria (1989-2003)," Industrial Organization 0509003, EconWPA.
- Yeon-Koo Che & Jozsef Sakovics, 2006. "The Hold-up Problem," ESE Discussion Papers 142, Edinburgh School of Economics, University of Edinburgh.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.