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The Property-Rights Theory of the Firm with Endogenous Timing of Asset Purchase

Author

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  • Ben Lockwood
  • David de Meza

Abstract

The standard property-rights theory of the firm assumes that prior to investing in human capital, team members meet and negotiate asset ownership. This paper endogenizes the event sequence in a matching model of market equilibrium. Equilibria exist in which, for strategic and efficiency reasons, agents invest in human capital and buy assets prior to matching and simple ownership arrangements are chosen. As in the original work, ownership of physical assets affects the incentive to invest. However, in this setting ownership creates rent shifting, search and asset transfer advantages, so new results emerge. It is no longer necessarily true that key agents own. As for the form of integration, there may be multiple Pareto-rankable equilibria.

Suggested Citation

  • Ben Lockwood & David de Meza, 1998. "The Property-Rights Theory of the Firm with Endogenous Timing of Asset Purchase," STICERD - Theoretical Economics Paper Series 364, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  • Handle: RePEc:cep:stitep:364
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    File URL: http://sticerd.lse.ac.uk/dps/te/te364.pdf
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    Cited by:

    1. Leonardo Felli & Kevin Roberts, 2016. "Does Competition Solve the Hold-up Problem?," Economica, London School of Economics and Political Science, vol. 83(329), pages 172-200, January.

    More about this item

    Keywords

    Property rights; incomplete contracts; matching; asset ownership.;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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