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Bargaining, Revenue Sharing and Control Rights Allocation

  • Susheng Wang

    (Hong Kong University of Science and Technology)

  • Tian (Tim) Zhu

    (Hong Kong University of Science and Technology)

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    In a two-period, double moral hazard model with incomplete contracting, this paper explores the relationship between revenue sharing and control rights. Specifically, we endogenize the allocation of both the income rights and the control rights and show why the two are often bundled together in the context of a two-party joint venture. Moreover, we study how the use of different bargaining solutions for the ex post contract renegotiation game may affect the optimal allocation of income and control rights. Our results can be used to explain the commonly observed ownership structures of equity joint ventures.

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    Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0373.

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    Date of creation: 01 Aug 2000
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    Handle: RePEc:ecm:wc2000:0373
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    1. Oliver Hart & John Moore, 1988. "Property Rights and the Nature of the Firm," Working papers 495, Massachusetts Institute of Technology (MIT), Department of Economics.
    2. repec:att:wimass:9714 is not listed on IDEAS
    3. Hart, Oliver D & Moore, John, 1988. "Incomplete Contracts and Renegotiation," Econometrica, Econometric Society, vol. 56(4), pages 755-85, July.
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    7. Nöldeke, Georg & Schmidt, Klaus M., 1995. "Option contracts and renegotiation: A solution to the Hold-Up Problem," Munich Reprints in Economics 19329, University of Munich, Department of Economics.
    8. Edlin, Aaron S & Reichelstein, Stefan, 1996. "Holdups, Standard Breach Remedies, and Optimal Investment," American Economic Review, American Economic Association, vol. 86(3), pages 478-501, June.
    9. Armen A. Alchian & Harold Demsetz, 1971. "Production, Information Costs and Economic Organizations," UCLA Economics Working Papers 10A, UCLA Department of Economics.
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    18. Hermalin, Benjamin E & Katz, Michael L, 1993. "Judicial Modification of Contracts between Sophisticated Parties: A More Complete View of Incomplete Contracts and Their Breach," Journal of Law, Economics and Organization, Oxford University Press, vol. 9(2), pages 230-55, October.
    19. Harris, Milton & Raviv, Artur, 1988. "Corporate governance : Voting rights and majority rules," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 203-235, January.
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    23. Oliver D. Hart, 1987. "Incomplete Contracts and the Theory of the Firm," Working papers 448, Massachusetts Institute of Technology (MIT), Department of Economics.
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