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Reputation and Allocation of Ownership

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  • Maija Halonen

Abstract

We show that allocation of ownership matters even in a long-term relationship where problems of opportunism are less severe unless agents are very patient. Ownership structure is chosen to give the agents best incentives to cooperate. The optimal control structure of the static game restricts the gain from deviation to be the lowest but also the punishment will be minimal. The worst ownership structure of the one-shot game is good in the repeated setting because it provides the highest punishment but bad because the gain from deviation is also highest. We show that when investment costs are very elastic partnership and a hostage type solution arise in equilibrium. While when costs are moderately elastic the results of the one-shot game apply.

Suggested Citation

  • Maija Halonen, 1995. "Reputation and Allocation of Ownership," STICERD - Theoretical Economics Paper Series 289, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  • Handle: RePEc:cep:stitep:289
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    File URL: http://sticerd.lse.ac.uk/dps/te/te289.pdf
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    Cited by:

    1. van Lent, L.A.G.M., 1999. "Incomplete contracting theory in empirical accounting research," Other publications TiSEM 088f797d-9fa4-4081-98f4-1, Tilburg University, School of Economics and Management.
    2. van Lent, L.A.G.M., 1996. "The Economics of an Audit Frm : The Case of KPMG in the Netherlands," Research Memorandum 730, Tilburg University, School of Economics and Management.

    More about this item

    Keywords

    Ownership; reputation; allocation; one-shot game; investment costs; agents; optimal control structure.;

    JEL classification:

    • J1 - Labor and Demographic Economics - - Demographic Economics

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