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 analyze 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 analyze the impact of spillover effects, we give a rationale for \"tax holidays\" and we examine how stochastic returns affect the strategic interaction of investor and host country.
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- Jonathan Thomas & Tim Worrall, 1994.
"Foreign Direct Investment and the Risk of Expropriation,"
Review of Economic Studies,
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- 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.
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