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Ownership, Access, and Sequential Investment

  • Maxim Mai
  • Vladimir Smirnov
  • Andrew Wait

We extend the propertyrights framework to allow for a separation of the ownership rights of access and veto and for sequential investment. Parties investing first do so before contracting is feasible. It is possible, however, that parties investing second can share (at least some of) their investment costs. Along with this costsharing effect, the incentive to invest is affected by a strategic effect generated by sequential investment. Together these effects can overturn some of the predictions of the propertyrights literature. For example, the most inclusive ownership structure might not be optimal, even if all investments are complementary.

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Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 47 (2014)
Issue (Month): 1 (February)
Pages: 203-231

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Handle: RePEc:cje:issued:v:47:y:2014:i:1:p:203-231
Contact details of provider: Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
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  1. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 661465000000000387, David K. Levine.
  2. Smirnov, V. & Wait, A., 2001. "Timing of Investments, Hold-up and Total Welfare," Department of Economics - Working Papers Series 808, The University of Melbourne.
  3. Neher, Darwin V, 1999. "Staged Financing: An Agency Perspective," Review of Economic Studies, Wiley Blackwell, vol. 66(2), pages 255-74, April.
  4. Harold Demsetz, 1996. "Ownership and Control: A Review," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 3(1), pages 107-112.
  5. Edella Schlager & Elinor Ostrom, 1992. "Property-Rights Regimes and Natural Resources: A Conceptual Analysis," Land Economics, University of Wisconsin Press, vol. 68(3), pages 249-262.
  6. Admati, Anat R & Perry, Motty, 1991. "Joint Projects without Commitment," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 259-76, April.
  7. Vladimir Smirnov & Andrew Wait, 2004. "Hold-up and Sequential Specific Investments," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 386-400, Summer.
  8. Grout, Paul A, 1984. "Investment and Wages in the Absence of Binding Contracts: A Nash Bargining Approach," Econometrica, Econometric Society, vol. 52(2), pages 449-60, March.
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