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Temporary partnerships as an information transmission mechanism

Author

Listed:
  • Møllgaard, H. Peter

    (Department of Economics, Copenhagen Business School)

  • Overgaard, Per Baltzer

    (Department of Economics, Copenhagen Business School)

Abstract

Asymmetric information and fear of acquiring a 'lemon' may explain the paucity of foreign investment in emerging market economies. If investors are uncertain about the profitability of investments, intrinsically inefficient, temporary partnerships or joint ventures may serve as mechanisms through which information is transmitted. Temporary partnerships with joint in- vestments by the domestic firm and the foreign investor, together with a buy-out option to the investor, can be used to separate good and bad invest- ment prospects in equilibrium. However, non-revealing equilibria may exist. Implications for foreign direct investment are traced and briefly related to the experience of transition economies. Keywords: investment, complementary assets, partnerships, joint ventures and licensing, costly signaling JEL: D8, F2, L14, O12

Suggested Citation

  • Møllgaard, H. Peter & Overgaard, Per Baltzer, 1998. "Temporary partnerships as an information transmission mechanism," Working Papers 10-1998, Copenhagen Business School, Department of Economics.
    • Handle: RePEc:hhs:cbsnow:1998_010
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    Keywords

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    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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