Joint Ventures as a Commitment Device Against Lobbies
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.
|Date of creation:||Feb 2010|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Stefano Comino & Antonio Nicolò & Piero Tedeschi, 2005.
"Termination Clauses in Partnerships,"
- Maija Halonen, 2002. "Reputation And The Allocation Of Ownership," Economic Journal, Royal Economic Society, vol. 112(481), pages 539-558, July.
- Ricardo Alonso & Wouter Dessein & Niko Matouschek, 2008.
"When Does Coordination Require Centralization?,"
American Economic Review,
American Economic Association, vol. 98(1), pages 145-79, March.
- HEGE, Ulrich & HAUSWALD, Robert, 2002.
"Ownership and control in joint ventures: theory and evidence,"
Les Cahiers de Recherche
750, HEC Paris.
- Hauswald, Robert & Hege, Ulrich, 2003. "Ownership and Control in Joint Ventures: Theory and Evidence," CEPR Discussion Papers 4056, C.E.P.R. Discussion Papers.
- Andreas Roider, 2004.
"Asset Ownership and Contractibility of Interaction,"
RAND Journal of Economics,
The RAND Corporation, vol. 35(4), pages 787-802, Winter.
- Andreas Roider, 2002. "Asset Ownership and Contractability of Interaction," Bonn Econ Discussion Papers bgse12_2002, University of Bonn, Germany, revised May 2003.
- Roman Inderst & Christian Wey, 2001.
"Bargaining, Mergers, and Technology Choice in Bilaterally Oligopolistic Industries,"
CIG Working Papers
FS IV 01-19, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
- 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.
- Inderst, Roman & Wey, Christian, 2001. "Bargaining, Mergers and Technology Choice in Bilaterally Oligopolistic Industries," CEPR Discussion Papers 2981, C.E.P.R. Discussion Papers.
- Cai, Hongbin, 2003. " A Theory of Joint Asset Ownership," RAND Journal of Economics, The RAND Corporation, vol. 34(1), pages 63-77, Spring.
- 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.
- Yeon-Koo Che & Jozsef Sakovics, 2006. "The Hold-up Problem," ESE Discussion Papers 142, Edinburgh School of Economics, University of Edinburgh.
- 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.
- Jerry A. Hausman & Gregory K. Leonard & Jean Tirole, 2003. "On Non-Exclusive Membership in Competing Joint Ventures," Levine's Working Paper Archive 506439000000000145, David K. Levine.
- Iavor Marangozov, 2005. "Characteristics of the International Joint Ventures in Bulgaria (1989-2003)," Industrial Organization 0509003, EconWPA.
- Hideshi Itoh & Hodaka Morita, 2006. "Formal Contracts, Relational Contracts, and the Holdup Problem," CESifo Working Paper Series 1786, CESifo Group Munich.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:7714. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.