IDEAS home Printed from https://ideas.repec.org/p/ags/uwarer/271174.html
   My bibliography  Save this paper

Control Rights in Complex Partnerships

Author

Listed:
  • Francesconi, Marco
  • Muthoo, Abhinay

Abstract

This paper develops a theory of the allocation of authority between two players who are in a “complex” partnership, that is, a partnership which produces impure public goods. We show that the optimal allocation depends on technological factors, the parties’ valuations of the goods produced, and the degree of impurity of these goods. When the degree of impurity is large, control rights should be given to the main investor, irrespective of preference considerations. There are some situations in which this allocation is optimal even if the degree of impurity is very low as long as one party’s investment is more important than the other party’s. If the parties’ investments are of similar importance and the degree of impurity is large, shared authority is optimal with a greater share going to the low-valuation party. If the importance of the parties’ investments is similar but the degree of impurity is neither large nor small, the low-valuation party should receive sole authority. We analyze an extension in which side payments are infeasible. We check for robustness of our results in several dimensions, such as allowing for multiple parties or for joint authority, apply our results to interpret a number of complex partnerships, including those involving schools and child custody.

Suggested Citation

  • Francesconi, Marco & Muthoo, Abhinay, 2010. "Control Rights in Complex Partnerships," Economic Research Papers 271174, University of Warwick - Department of Economics.
  • Handle: RePEc:ags:uwarer:271174
    DOI: 10.22004/ag.econ.271174
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/271174/files/twerp_933a.pdf
    Download Restriction: no

    File URL: https://ageconsearch.umn.edu/record/271174/files/twerp_933a.pdf?subformat=pdfa
    Download Restriction: no

    File URL: https://libkey.io/10.22004/ag.econ.271174?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Raghuram G. Rajan & Luigi Zingales, 1998. "Power in a Theory of the Firm," The Quarterly Journal of Economics, Oxford University Press, vol. 113(2), pages 387-432.
    2. Abhijit V. Banerjee & Shawn Cole & Esther Duflo & Leigh Linden, 2007. "Remedying Education: Evidence from Two Randomized Experiments in India," The Quarterly Journal of Economics, Oxford University Press, vol. 122(3), pages 1235-1264.
    3. Helmut Bester, 2009. "Externalities, communication and the allocation of decision rights," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 41(2), pages 269-296, November.
    4. Hanming Fang & Peter Norman, 2006. "To bundle or not to bundle," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 946-963, December.
    5. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475.
    6. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
    7. Imran Rasul, 2006. "The Economics of Child Custody," Economica, London School of Economics and Political Science, vol. 73(289), pages 1-25, February.
    8. Philippe Aghion & Mathias Dewatripont & Patrick Rey, 2004. "Transferable Control," Journal of the European Economic Association, MIT Press, vol. 2(1), pages 115-138, March.
    9. Maija Halonen, 2002. "Reputation And The Allocation Of Ownership," Economic Journal, Royal Economic Society, vol. 112(481), pages 539-558, July.
    10. Maija Halonen-Akatwijuka & Evagelos Pafilis, 2009. "Reputation and Ownership of Public Goods," The Centre for Market and Public Organisation 09/211, The Centre for Market and Public Organisation, University of Bristol, UK.
    11. Prat, Andrea & Strömberg, David, 2005. "Commercial Television and Voter Information," CEPR Discussion Papers 4989, C.E.P.R. Discussion Papers.
    12. Timothy Besley & Andrea Prat, 2006. "Handcuffs for the Grabbing Hand? Media Capture and Government Accountability," American Economic Review, American Economic Association, vol. 96(3), pages 720-736, June.
    13. Flinn, Christopher J, 2000. "Modes of Interaction between Divorced Parents," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(3), pages 545-578, August.
    14. Anderlini, Luca & Felli, Leonardo, 2001. "Costly Bargaining and Renegotiation," Econometrica, Econometric Society, vol. 69(2), pages 377-411, March.
    15. Martimort, David & Pouyet, Jérôme, 2006. "'Build It or Not': Normative and Positive Theories of Public-Private Partnerships," CEPR Discussion Papers 5610, C.E.P.R. Discussion Papers.
    16. Mark G. Duggan, 2000. "Hospital Ownership and Public Medical Spending," The Quarterly Journal of Economics, Oxford University Press, vol. 115(4), pages 1343-1373.
    17. Alejandra Mizala & Pilar Romaguera, 2000. "School Performance and Choice: The Chilean Experience," Journal of Human Resources, University of Wisconsin Press, vol. 35(2), pages 392-417.
    18. Anderlini, Luca & Felli, Leonardo, 2001. "Costly Bargaining and Renegotiation," Econometrica, Econometric Society, vol. 69(2), pages 377-411, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Francesconi, Marco & Muthoo, Abhinay, 2006. "Control Rights in Public-Private Partnerships," CEPR Discussion Papers 5733, C.E.P.R. Discussion Papers.
    2. Schmitz, Patrick W., 2015. "Government versus private ownership of public goods: The role of bargaining frictions," Journal of Public Economics, Elsevier, vol. 132(C), pages 23-31.
    3. Müller, Daniel & Schmitz, Patrick W., 2016. "Transaction costs and the property rights approach to the theory of the firm," European Economic Review, Elsevier, vol. 87(C), pages 92-107.
    4. Francesconi, Marco & Muthoo, Abhinay, 2003. "An Economic Model of Child Custody," CEPR Discussion Papers 4054, C.E.P.R. Discussion Papers.
    5. Kusterer, David J. & Schmitz, Patrick W., 2017. "The management of innovation: Experimental evidence," Games and Economic Behavior, Elsevier, vol. 104(C), pages 706-725.
    6. Rainer, Helmut, 2007. "Should we write prenuptial contracts?," European Economic Review, Elsevier, vol. 51(2), pages 337-363, February.
    7. Halonen-Akatwijuka, Maija, 2012. "Nature of human capital, technology and ownership of public goods," Journal of Public Economics, Elsevier, vol. 96(11), pages 939-945.
    8. David Martimort & Flavio Menezes & Myrna Wooders & ELISABETTA IOSSA & DAVID MARTIMORT, 2015. "The Simple Microeconomics of Public-Private Partnerships," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(1), pages 4-48, February.
    9. Patrick W. Schmitz, 2006. "Information Gathering, Transaction Costs, and the Property Rights Approach," American Economic Review, American Economic Association, vol. 96(1), pages 422-434, March.
    10. Schmitz, Patrick W., 2013. "Incomplete contracts and optimal ownership of public goods," Economics Letters, Elsevier, vol. 118(1), pages 94-96.
    11. Schmitz, Patrick W., 2013. "Bargaining position, bargaining power, and the property rights approach," Economics Letters, Elsevier, vol. 119(1), pages 28-31.
    12. Schmitz, Patrick W., 2014. "Optimal ownership of public goods reconsidered," Economics Letters, Elsevier, vol. 125(1), pages 21-24.
    13. Kvaløy, Ola, 2008. "Do norms matter for firm boundaries?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(3), pages 969-975, June.
    14. Ilya Segal & Michael D.Whinston, 2012. "Property Rights," Introductory Chapters, in: Robert Gibbons & John Roberts (ed.),: The Handbook of Organizational Economics, Princeton University Press.
    15. Oliver Hart, 2001. "Norms and the Theory of the Firm," Harvard Institute of Economic Research Working Papers 1923, Harvard - Institute of Economic Research.
    16. Schmitz, Patrick W., 2013. "Investments in physical capital, relationship-specificity, and the property rights approach," Economics Letters, Elsevier, vol. 119(3), pages 336-339.
    17. Schmitz, Patrick W., 2021. "Optimal ownership of public goods under asymmetric information," Journal of Public Economics, Elsevier, vol. 198(C).
    18. Schmitz, Patrick W., 2021. "Optimal ownership of public goods under asymmetric information," Journal of Public Economics, Elsevier, vol. 198(C).
    19. Hideshi Itoh & Hodaka Morita, 2015. "Formal Contracts, Relational Contracts, and the Threat-Point Effect," American Economic Journal: Microeconomics, American Economic Association, vol. 7(3), pages 318-346, August.
    20. Baiman, Stanley & Rajan, Madhav V., 2002. "Incentive issues in inter-firm relationships," Accounting, Organizations and Society, Elsevier, vol. 27(3), pages 213-238, April.

    More about this item

    Keywords

    Financial Economics;

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:uwarer:271174. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://warwick.ac.uk/fac/soc/economics/research/workingpapers/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://warwick.ac.uk/fac/soc/economics/research/workingpapers/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.