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A Theory of Joint Asset Ownership

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  • Cai, Hongbin

Abstract

I offer a theory of joint ownership by extending the standard property right theory of the firm to situations where parties can endogenously choose the degree of specificity of their investments (i.e., both the type of investment--specific and general--and the level of each). When specific and general investments are complements, the standard GHM results are obtained and joint ownership is suboptimal. When specific and general investments are substitutes, joint ownership is optimal as long as trade takes place within the relationship. Joint ownership provides stronger incentives to make specific investments than any other forms of ownership by discouraging general investments. Copyright 2003 by the RAND Corporation.

Suggested Citation

  • Cai, Hongbin, 2003. "A Theory of Joint Asset Ownership," RAND Journal of Economics, The RAND Corporation, vol. 34(1), pages 63-77, Spring.
    • Handle: RePEc:rje:randje:v:34:y:2003:i:1:p:63-77
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