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Asset Ownership and Investment Incentives Revisited

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  • de Meza, David
  • Lockwood, Ben

Abstract

Previous work on the property rights theory of the …rm suggests that in the presence of outside options, asset ownership may demotivate managers. This paper shows that this conclusion relies on the assumption that a manager’s outside option only depends on her own investment. In many cases, an asset owner has the opportunity to continue with a project even if the team breaks up. The investments of non-owners may then be devalued, but are typically not wholly lost to the owner. This weakens the bargaining power of the non-owner. So, in the presence of cross e¤ects, outside options do not necessarily overturn the property of the original Grossman-HartMoore model that an asset transfer may motivate the gainer and demotivate the loser.

Suggested Citation

  • de Meza, David & Lockwood, Ben, "undated". "Asset Ownership and Investment Incentives Revisited," Economic Research Papers 269333, University of Warwick - Department of Economics.
    • Handle: RePEc:ags:uwarer:269333
    DOI: 10.22004/ag.econ.269333
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    References listed on IDEAS

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    1. Ken Binmore & Avner Shared & John Sutton, 1989. "An Outside Option Experiment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(4), pages 753-770.
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    Keywords

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    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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