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Bargaining, Revenue Sharing and Control Rights Allocation

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  • Susheng Wang

    (Hong Kong University of Science and Technology)

  • Tian (Tim) Zhu

    (Hong Kong University of Science and Technology)

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    Abstract

    In a two-period, double moral hazard model with incomplete contracting, this paper explores the relationship between revenue sharing and control rights. Specifically, we endogenize the allocation of both the income rights and the control rights and show why the two are often bundled together in the context of a two-party joint venture. Moreover, we study how the use of different bargaining solutions for the ex post contract renegotiation game may affect the optimal allocation of income and control rights. Our results can be used to explain the commonly observed ownership structures of equity joint ventures.

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    Bibliographic Info

    Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0373.

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    Date of creation: 01 Aug 2000
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    Handle: RePEc:ecm:wc2000:0373

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    1. Armen A. Alchian & Harold Demsetz, 1971. "Production, Information Costs and Economic Organizations," UCLA Economics Working Papers, UCLA Department of Economics 10A, UCLA Department of Economics.
    2. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
    3. David De Meza & Ben Lockwood, 1998. "Does Asset Ownership Always Motivate Managers? Outside Options And The Property Rights Theory Of The Firm," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 113(2), pages 361-386, May.
    4. Hart, Oliver D, 1988. "Incomplete Contracts and the Theory of the Firm," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 4(1), pages 119-39, Spring.
    5. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1994. "Renegotiation Design with Unverifiable Information," Econometrica, Econometric Society, Econometric Society, vol. 62(2), pages 257-82, March.
    6. Raghuram G. Rajan & Luigi Zingales, . "Power in a Theory of the Firm," CRSP working papers, Center for Research in Security Prices, Graduate School of Business, University of Chicago 335, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    7. Hermalin, Benjamin E & Katz, Michael L, 1993. "Judicial Modification of Contracts between Sophisticated Parties: A More Complete View of Incomplete Contracts and Their Breach," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 9(2), pages 230-55, October.
    8. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(4), pages 691-719, August.
    9. Sanford J. Grossman & Oliver D. Hart, 1987. "One Share/One Vote and the Market for Corporate Control," NBER Working Papers 2347, National Bureau of Economic Research, Inc.
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    11. Dasgupta, Sudipto & Tao, Zhigang, 1998. "Contractual incompleteness and the optimality of equity joint ventures," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 37(4), pages 391-413, December.
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    13. Nöldeke, Georg & Schmidt, Klaus M., 1995. "Option contracts and renegotiation: A solution to the Hold-Up Problem," Munich Reprints in Economics, University of Munich, Department of Economics 19329, University of Munich, Department of Economics.
    14. Oliver Hart & John Moore, 1988. "Property Rights and the Nature of the Firm," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 495, Massachusetts Institute of Technology (MIT), Department of Economics.
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    16. Aaron S. Edlin & Stefan Reichelstein, 1995. "Holdups, Standard Breach Remedies, and Optimal Investment," NBER Working Papers 5007, National Bureau of Economic Research, Inc.
    17. Hart, Oliver D & Moore, John, 1988. "Incomplete Contracts and Renegotiation," Econometrica, Econometric Society, Econometric Society, vol. 56(4), pages 755-85, July.
    18. Sugato Bhattacharyya & Francine Lafontaine, 1995. "Double-Sided Moral Hazard and the Nature of Share Contracts," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 761-781, Winter.
    19. Richard E. Romano, 1994. "Double Moral Hazard and Resale Price Maintenance," RAND Journal of Economics, The RAND Corporation, vol. 25(3), pages 455-466, Autumn.
    20. Chung, Tai-Yeong, 1991. "Incomplete Contracts, Specific Investments, and Risk Sharing," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(5), pages 1031-42, October.
    21. Harris, Milton & Raviv, Artur, 1988. "Corporate governance : Voting rights and majority rules," Journal of Financial Economics, Elsevier, Elsevier, vol. 20(1-2), pages 203-235, January.
    22. Chiu, Y Stephen, 1998. "Noncooperative Bargaining, Hostages, and Optimal Asset Ownership," American Economic Review, American Economic Association, American Economic Association, vol. 88(4), pages 882-901, September.
    23. Binmore, Ken & Shaked, Avner & Sutton, John, 1989. "An Outside Option Experiment," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 104(4), pages 753-70, November.
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