Production Complementarity and Investment Incentives: Does Asset Ownership Matter?
AbstractThis paper analyzes the role of the initial allocation of ownership rights in transactions where parties make relationship-specific investments and contracts are incomplete. If there is high mutual dependence in production, the initial allocation of ownership rights is irrelevant. This result contrasts with Grossman and Hart (1986), who, using a similar model, obtain that the ownership rights should be allocated to minimize ex-ante inefficiencies in production and assets should be owned by the party whose investment is most productive. The critical element behind these two different results is that while Grossman and Hart (1986) model uses the Nash bargaining solution treating status quo payoffs as disagreement points, here they are treated as outside options. The model also shows that, when relevant, asset ownership may provide disincentive to invest.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 1910.
Date of creation: May 2006
Date of revision:
organizational behaviour; transaction costs; property rights;
Find related papers by JEL classification:
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-03 (All new papers)
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