Expropriation and control rights: A dynamic model of foreign direct investment
This paper studies the strategic interaction between a foreign direct investor and a host country. We analyse how the investor can use his control rights to protect his investment, if he faces the risk of ‘creeping expropriation’ once his investment is sunk. It is shown that this hold-up problem may cause underinvestment, if the outside option of the investor is too weak, and overinvestment if it is too strong. We also analyse the impact of spillover effects, give a rationale for ‘tax holidays’ and examine how stochastic returns affect the strategic interaction of investor and host country.
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References listed on IDEAS
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- Chris Doyle & Sweder Wijnbergen, 1994.
"Taxation of foreign multinationals: A sequential bargaining approach to tax holidays,"
International Tax and Public Finance,
Springer, vol. 1(3), pages 211-225, October.
- Doyle, Christopher & van Wijnbergen, Sweder, 1984. "Taxation of Foreign Multinationals: A Sequential Bargaining Approach to Tax Holidays," CEPR Discussion Papers 25, C.E.P.R. Discussion Papers.
- repec:oup:restud:v:61:y:1994:i:1:p:81-108 is not listed on IDEAS
- Nöldeke, Georg & Schmidt, Klaus M., 1998.
"Sequential investments and options to own,"
Munich Reprints in Economics
19327, University of Munich, Department of Economics.
- 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, vol. 94(4), pages 691-719, August.
- Grossman, Sanford J. & Hart, Oliver D., 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Scholarly Articles 3450060, Harvard University Department of Economics.
- Grossman, Sanford J & Hart, Oliver, 1985. "The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration," CEPR Discussion Papers 70, C.E.P.R. Discussion Papers.
- Oliver Hart & Sanford Grossman, 1985. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Working papers 372, Massachusetts Institute of Technology (MIT), Department of Economics.
- Bond, Eric W & Samuelson, Larry, 1986. "Tax Holidays as Signals," American Economic Review, American Economic Association, vol. 76(4), pages 820-26, September.
- Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
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