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Joint venture instability and monitoring

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  • Prabal Roy Chowdhury

    ()
    (Indian Statistical Institute, New Delhi)

Abstract

In this paper we build a theory of joint venture formation and instability based on synergy and monitoring. We find that monitoring problems may prevent the joint venture from forming at all. Moreover, joint venture formation usually involves over-monitoring, and ex post could involve cheating by one, or both the firms. It is also possible that joint venture formation leads to zero monitoring by both the firms. We demonstrate that faced with the possibility of over-monitoring, firms may choose to under-invest in improving the input quality. We also develop some testable implications of our theory.

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Bibliographic Info

Paper provided by Indian Statistical Institute, New Delhi, India in its series Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers with number 04-09.

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Length: 24 pages
Date of creation: Jan 2003
Date of revision:
Handle: RePEc:ind:isipdp:04-09

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Keywords: Joint venture; over-monitoring; under-monitoring; underinvestment;

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  1. Das, Satya P, 1999. "Direct Foreign Investment versus Licensing," Review of Development Economics, Wiley Blackwell, vol. 3(1), pages 86-97, February.
  2. Roy Chowdhury, Indrani & Roy Chowdhury, Prabal, 2001. "A theory of joint venture life-cycles," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 319-343, March.
  3. d'Aspremont, Claude & Jacquemin, Alexis, 1988. "Cooperative and Noncooperative R&D in Duopoly with Spillovers," American Economic Review, American Economic Association, vol. 78(5), pages 1133-37, December.
  4. Satya P. Das, 1998. "On the choice of international joint venture: the role of policy moral hazard," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 2(2), pages 135-150.
  5. Mukherjee, Arijit & Sengupta, Sarbajit, 2001. "Joint Ventures versus Fully Owned Subsidiaries: Multinational Strategies in Liberalizing Economies," Review of International Economics, Wiley Blackwell, vol. 9(1), pages 163-80, February.
  6. Marjit, Sugata, 1991. "Incentives for cooperative and non-cooperative R and D in duopoly," Economics Letters, Elsevier, vol. 37(2), pages 187-191, October.
  7. Choi, Jay Pil, 1993. "Cooperative R&D with product market competition," International Journal of Industrial Organization, Elsevier, vol. 11(4), pages 553-571.
  8. Svejnar, Jan & Smith, Stephen C, 1984. "The Economics of Joint Ventures in Less Developed Countries," The Quarterly Journal of Economics, MIT Press, vol. 99(1), pages 149-67, February.
  9. Yu, Eden S. H. & Chi-Chur, Chao, 1996. "Are wholly foreign-owned enterprises better than joint ventures?," Journal of International Economics, Elsevier, vol. 40(1-2), pages 225-237, February.
  10. Miller, R-R & Glen, J-D & Jaspersen, F-Z & Karmokolias, Y, 1996. "International Joint Ventures in Developing Countries. Happy Marriages?," Papers 29, World Bank - International Finance Corporation.
  11. Ray Chaudhuri, Prabal, 1995. "Technological asymmetry and joint product development," International Journal of Industrial Organization, Elsevier, vol. 13(1), pages 23-39, March.
  12. Sinha, Uday Bhanu, 2001. "Imitative innovation and international joint ventures: a dynamic analysis," International Journal of Industrial Organization, Elsevier, vol. 19(10), pages 1527-1562, December.
  13. Combs, K. L., 1993. "The role of information sharing in cooperative research and development," International Journal of Industrial Organization, Elsevier, vol. 11(4), pages 535-551.
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