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Firm heterogeneity and the integration trilemma: The utility of Joint ventures in integration versus outsourcing models

Author

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  • Charlie Joyez

    () (Université Paris-Dauphine, PSL Research University,IRD, LEDa, DIAL)

Abstract

The traditional Grossman-Hart-Moore (GHM) property right theory of the ?rm does not consider shared ownership as an optimal solution because of the incentive loss it would be responsible for. This paper examines the rationale for speci?c cases of shared ownership: International Joint Ventures (JVs), with heterogeneous ?rms in various host-countries. Speci?cally, we built a theoretical model that extends the Antr`as & Helpman (2008) integration dilemma under partially incomplete contracts to international joint-ventures. These turn to be the optimal ownership structure in two different cases. Speci?cally, for medium-productive ?rms when the most productive would opt for full integration. More interestingly JVs turns to be the optimal ownership choice, even for most productive ?rms in countries with lower quality of contractual institutions. The model insists then on the interaction between ?rm-level and country-level parameters, with higher productivity giving increasing access to higher ownership share in countries with stronger contractual enforceability.

Suggested Citation

  • Charlie Joyez, 2017. "Firm heterogeneity and the integration trilemma: The utility of Joint ventures in integration versus outsourcing models," Working Papers DT/2017/09, DIAL (Développement, Institutions et Mondialisation).
  • Handle: RePEc:dia:wpaper:dt201709
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    File URL: http://www.dial.ird.fr/media/ird-sites-d-unites-de-recherche/dial/documents/publications/doc_travail/2017/2017-09
    File Function: First version, 2017
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    References listed on IDEAS

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    1. Raghuram G. Rajan & Luigi Zingales, 1998. "Power in a Theory of the Firm," The Quarterly Journal of Economics, Oxford University Press, vol. 113(2), pages 387-432.
    2. Defever, Fabrice & Toubal, Farid, 2013. "Productivity, relationship-specific inputs and the sourcing modes of multinationals," Journal of Economic Behavior & Organization, Elsevier, vol. 94(C), pages 345-357.
    3. Chong-En Bai & Zhigang Tao & Changqi Wu, 2004. "Revenue Sharing and Control Rights in Team Production: Theories and Evidence from Joint Ventures," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 277-305, Summer.
    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.
    5. Philippe Aghion & Richard Holden, 2011. "Incomplete Contracts and the Theory of the Firm: What Have We Learned over the Past 25 Years?," Journal of Economic Perspectives, American Economic Association, vol. 25(2), pages 181-197, Spring.
    6. Susheng Wang & Tian Zhu, 2005. "Control Allocation, Revenue Sharing, And Joint Ownership," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(3), pages 895-915, August.
    7. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
    8. Cai, Hongbin, 2003. " A Theory of Joint Asset Ownership," RAND Journal of Economics, The RAND Corporation, vol. 34(1), pages 63-77, Spring.
    9. Gene M. Grossman & Elhanan Helpman, 2002. "Integration versus Outsourcing in Industry Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 85-120.
    10. Eppinger, Peter S. & Kukharskyy, Bohdan, 2017. "Contracting institutions and firm boundaries," University of Tuebingen Working Papers in Economics and Finance 100, University of Tuebingen, Faculty of Economics and Social Sciences.
    11. Holmstrom, Bengt, 1999. "The Firm as a Subeconomy," Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(1), pages 74-102, April.
    12. Fan Cui, 2011. "Incomplete contracts, joint ventures, and ownership restrictions," Oxford Economic Papers, Oxford University Press, vol. 63(2), pages 254-278, April.
    13. Oliver Hart, 2009. "Hold-up, Asset Ownership, and Reference Points," The Quarterly Journal of Economics, Oxford University Press, vol. 124(1), pages 267-300.
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    Cited by:

    1. Charlie Joyez, 2018. "Interaction between firm-level and host-country characteristics and multinationals' integration choices," Working Papers DT/2018/03, DIAL (Développement, Institutions et Mondialisation).

    More about this item

    Keywords

    Property Right Theory; Asset Ownership; Shared Ownership; International Joint Ventures.;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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