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


  • Ben Lockwood
  • David de Meza


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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    References listed on IDEAS

    1. Hart, Oliver D & Moore, John, 1988. "Incomplete Contracts and Renegotiation," Econometrica, Econometric Society, vol. 56(4), pages 755-785, July.
    2. Rubinstein, Ariel & Wolinsky, Asher, 1992. "Renegotiation-Proof Implementation and Time Preferences," American Economic Review, American Economic Association, vol. 82(3), pages 600-614, June.
    3. Moore, John & Repullo, Rafael, 1988. "Subgame Perfect Implementation," Econometrica, Econometric Society, vol. 56(5), pages 1191-1220, September.
    4. Hermalin, Benjamin E & Katz, Michael L, 1991. "Moral Hazard and Verifiability: The Effects of Renegotiation in Agency," Econometrica, Econometric Society, vol. 59(6), pages 1735-1753, November.
    5. Oliver Hart & John Moore, 1999. "Foundations of Incomplete Contracts," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 115-138.
    6. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1994. "Renegotiation Design with Unverifiable Information," Econometrica, Econometric Society, vol. 62(2), pages 257-282, March.
    7. Tai-Yeong Chung, 1991. "Incomplete Contracts, Specific Investments, and Risk Sharing," Review of Economic Studies, Oxford University Press, vol. 58(5), pages 1031-1042.
    8. Eric Maskin, 1999. "Nash Equilibrium and Welfare Optimality," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 23-38.
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    10. Abreu, Dilip & Sen, Arunava, 1990. "Subgame perfect implementation: A necessary and almost sufficient condition," Journal of Economic Theory, Elsevier, vol. 50(2), pages 285-299, April.
    11. Martin J. Osborne & Ariel Rubinstein, 1994. "A Course in Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262650401, July.
    12. Ilya Segal, 1999. "Complexity and Renegotiation: A Foundation for Incomplete Contracts," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 57-82.
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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


    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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