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Bargaining position, bargaining power, and the property rights approach

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  • Schmitz, Patrick W.

Abstract

In the property rights approach to the theory of the firm (Hart, 1995), parties bargain about whether or not to collaborate after non-contractible investments have been made. Most contributions apply the regular Nash bargaining solution. We explore the implications of using the generalized Nash bargaining solution. A prominent finding regarding the suboptimality of joint ownership turns out to be robust. However, in contrast to the standard property rights model, it may well be optimal to give ownership to a party whose investments are less productive, provided that this party's ex-post bargaining power is relatively small.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 44953.

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Date of creation: Feb 2013
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Handle: RePEc:pra:mprapa:44953

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Keywords: ownership; incomplete contracts; bargaining; investment incentives;

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  1. Susanne Ohlendorf, 2009. "Expectation Damages, Divisible Contracts, and Bilateral Investment," American Economic Review, American Economic Association, American Economic Association, vol. 99(4), pages 1608-18, September.
  2. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(6), pages 1119-58, December.
  3. Schmitz, Patrick W., 2005. "Information Gathering, Transaction Costs and the Property Rights Approach," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5417, C.E.P.R. Discussion Papers.
  4. Schmitz, Patrick W., 2007. "Joint Ownership and the Hold-up Problem Under Asymmetric Information," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6478, C.E.P.R. Discussion Papers.
  5. 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.
  6. Schmitz, Patrick W., 2013. "Incomplete contracts and optimal ownership of public goods," Economics Letters, Elsevier, Elsevier, vol. 118(1), pages 94-96.
  7. Nöldeke, Georg & Schmidt, Klaus M., 1997. "Sequential Investments and Options to Own," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1645, C.E.P.R. Discussion Papers.
  8. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive, David K. Levine 661465000000000387, David K. Levine.
  9. Maija Halonen, 2002. "Reputation And The Allocation Of Ownership," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 112(481), pages 539-558, July.
  10. Antràs, Pol & Staiger, Robert, 2008. "Offshoring and the Role of Trade Agreements," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6966, C.E.P.R. Discussion Papers.
  11. Farrell, Joseph & Gibbons, Robert, 1995. "Cheap Talk about Specific Investments," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 11(2), pages 313-34, October.
  12. Hart, Oliver & Moore, John, 1999. "Foundations of Incomplete Contracts," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 66(1), pages 115-38, January.
  13. 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.
  14. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521576475.
  15. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198288817, October.
  16. Hoppe, Eva I. & Schmitz, Patrick W., 2010. "Public versus private ownership: Quantity contracts and the allocation of investment tasks," Journal of Public Economics, Elsevier, Elsevier, vol. 94(3-4), pages 258-268, April.
  17. 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.
  18. Bernhard Ganglmair & Luke M. Froeb & Gregory J. Werden, 2012. "Patent Hold-Up and Antitrust: How A Well-Intentioned Rule Could Retard Innovation," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 60(2), pages 249-273, 06.
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