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When Does Competition Lead to Efficient Investments?

  • Kalyan Chatterjee

    (Pennsylvania State University)

  • Y. Stephen Chiu

    (Chinese University of Hong Kong)

The paper studies agents’ investment decisions between general and speci…c in-vestments under di¤erent ownership structures in a thin, decentralized market where each agent’s decision a¤ects the decisions and welfare of other (otherwise unrelated) agents mainly through indirect market linkages. The paper demonstrates that “excess competition among investors,” in every equilibrium, will lead to e¢cient investments, regardless of asset ownership. In the absence of such excess competition, in every equilibrium, ine¢cient investments will result, unless some special ownership arrange-ment is made. The problem in which the choice variable is investment level, instead of investment type, is also studied.

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Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0518.

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Date of creation: 01 Aug 2000
Date of revision:
Handle: RePEc:ecm:wc2000:0518
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  1. Maskin, Eric & Tirole, Jean, 1999. "Two Remarks on the Property-Rights Literature," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 139-49, January.
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  10. repec:tpr:qjecon:v:113:y:1998:i:2:p:361-386 is not listed on IDEAS
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  14. Holmstrom, Bengt, 1999. "The Firm as a Subeconomy," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(1), pages 74-102, April.
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  18. Chiu, Y Stephen, 1998. "Noncooperative Bargaining, Hostages, and Optimal Asset Ownership," American Economic Review, American Economic Association, vol. 88(4), pages 882-901, September.
  19. Bolton, Patrick & Whinston, Michael D, 1993. "Incomplete Contracts, Vertical Integration, and Supply Assurance," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 121-48, January.
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