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Information and the Optimal Ownership Structure of Firms

  • Matouschek, Niko
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    I develop a property rights theory of the firm in which managers bargain over the sharing of quasi-rents in the presence of private information. I analyse the interdependence between the ownership structure of firms and the bargaining inefficiency that is due to the presence of private information and derive the optimal ownership structure that minimizes the bargaining inefficiency. I first assume that managers can only contract over the ownership structure and show that they optimally choose one that minimizes (maximizes) their aggregate disagreement pay-off if the minimum expected quasi-rents are large (small). I then extend my analysis and allow the managers to contract over the ownership structure and the bargaining game that is played ex-post. I show that the main results continue to hold if and only if ownership structures are deterministic and cannot be made contingent on information that is revealed ex-post.

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    Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3216.

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    Date of creation: Feb 2002
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    Handle: RePEc:cpr:ceprdp:3216
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    1. Hart, Oliver D. & Moore, John, 1990. "Property Rights and the Nature of the Firm," Scholarly Articles 3448675, Harvard University Department of Economics.
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    8. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1994. "Renegotiation Design with Unverifiable Information," Scholarly Articles 12375014, Harvard University Department of Economics.
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    15. Chiu, Y Stephen, 1998. "Noncooperative Bargaining, Hostages, and Optimal Asset Ownership," American Economic Review, American Economic Association, vol. 88(4), pages 882-901, September.
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    17. Rajan, Raghuram G & Zingales, Luigi, 1998. "Power in a Theory of the Firm," CEPR Discussion Papers 1777, C.E.P.R. Discussion Papers.
    18. Maija Halonen, 2002. "Reputation And The Allocation Of Ownership," Economic Journal, Royal Economic Society, vol. 112(481), pages 539-558, July.
    19. Bengt Holmstrom & John Roberts, 1998. "The Boundaries of the Firm Revisited," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 73-94, Fall.
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