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Transaction costs and the property rights approach to the theory of the firm

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  • Muller, Daniel
  • Schmitz, Patrick W

Abstract

The standard property rights approach is focused on ex ante investment incentives, while there are no transaction costs that might restrain ex post negotiations. We explore the implications of such transaction costs. Prominent conclusions of the property rights theory may be overturned: A party may have stronger investment incentives when a non-investing party is the owner, and joint ownership can be the uniquely optimal ownership structure. Intuitively, an ownership structure that is unattractive in the standard model may now be desirable, because it implies large gains from trade, such that the parties are more inclined to incur the transaction costs.

Suggested Citation

  • Muller, Daniel & Schmitz, Patrick W, 2014. "Transaction costs and the property rights approach to the theory of the firm," CEPR Discussion Papers 10207, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:10207
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    Cited by:

    1. repec:bla:jecsur:v:31:y:2017:i:1:p:281-302 is not listed on IDEAS
    2. Schmitz, Patrick W., 2016. "The negotiators who knew too much: Transaction costs and incomplete information," Economics Letters, Elsevier, vol. 145(C), pages 33-37.
    3. Müller, Daniel & Schmitz, Patrick W., 2017. "Optimal ownership of public goods in the presence of transaction costs," Economics Letters, Elsevier, vol. 152(C), pages 88-92.
    4. Valeria Gattai & Piergiovanna Natale, 2014. "Joint Ventures and the Property Rights Theory of the Firm: a Review of the Literature," Working Papers 287, University of Milano-Bicocca, Department of Economics, revised Dec 2014.

    More about this item

    Keywords

    incomplete contracts; joint ownership; property rights approach; transaction costs; vertical integration;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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