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Joint Ventures as a Commitment Device Against Lobbies


  • Berardi, Nicoletta
  • Seabright, Paul


This paper investigates a hitherto unexplored rationale for firms to enter into joint ventures. We model risky projects with autocorrelated productivity shocks as creating an option value of investing over time so that later investments benefit from the information revealed by the realization of earlier investments. However, internal and external lobbies are likely to pressurize owners into paying out early revenues from such investments precisely when the autocorrelation of productivity implies they should be reinvesting them in the project. Joint ventures provide a commitment mechanism against lobbies, thereby enabling more efficient levels of investment. We present some case study evidence that this rationale for entering into joint ventures is especially relevant in the context of infrastructure projects in developing countries, though other contexts such as pharmaceuticals are also favorable to the phenomenon. We also find that Business Environment and Enterprises Performance survey data corroborate the model's prediction that organizations under conditions favorable to internal or external lobbying pressure are more likely than other firms to choose joint ventures as their corporate governance structure.

Suggested Citation

  • Berardi, Nicoletta & Seabright, Paul, 2010. "Joint Ventures as a Commitment Device Against Lobbies," CEPR Discussion Papers 7714, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:7714

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    References listed on IDEAS

    1. Ricardo Alonso & Wouter Dessein & Niko Matouschek, 2008. "When Does Coordination Require Centralization?," American Economic Review, American Economic Association, vol. 98(1), pages 145-179, March.
    2. Comino, Stefano & Nicolò, Antonio & Tedeschi, Piero, 2010. "Termination clauses in partnerships," European Economic Review, Elsevier, vol. 54(5), pages 718-732, July.
    3. Hausman, Jerry A & Leonard, Gregory K & Tirole, Jean, 2003. " On Nonexclusive Membership in Competing Joint Ventures," RAND Journal of Economics, The RAND Corporation, vol. 34(1), pages 43-62, Spring.
    4. Inderst, Roman & Wey, Christian, 2003. " Bargaining, Mergers, and Technology Choice in Bilaterally Oligopolistic Industries," RAND Journal of Economics, The RAND Corporation, vol. 34(1), pages 1-19, Spring.
    5. HEGE, Ulrich & HAUSWALD, Robert, 2002. "Ownership and control in joint ventures: theory and evidence," Les Cahiers de Recherche 750, HEC Paris.
    6. Iavor Marangozov, 2005. "Characteristics of the International Joint Ventures in Bulgaria (1989-2003)," Industrial Organization 0509003, EconWPA.
    7. Cai, Hongbin, 2003. " A Theory of Joint Asset Ownership," RAND Journal of Economics, The RAND Corporation, vol. 34(1), pages 63-77, Spring.
    8. Jacques Crémer, 1995. "Arm's Length Relationships," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 275-295.
    9. Jeffrey J. Reimer, 2006. "Vertical Integration in the Pork Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(1), pages 234-248.
    10. Andreas Roider, 2004. "Asset Ownership and Contractibility of Interaction," RAND Journal of Economics, The RAND Corporation, vol. 35(4), pages 787-802, Winter.
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    More about this item


    commitment mechanism; incomplete contracts; infrastructure; joint venture; lobbying;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance


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