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Outside Options, Ownership and Incentives Revisited

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Listed:
  • De Meza, D.
  • Lockwood, B.

Abstract

Previous work on the property rights theory of the firm suggests that in the presence of outside options, ownership may be counter productive in motivating managers. This paper shows that this conclusion depends on the assumption that a manager's outside option only depends on her own investments. In many cases, an owner has the right to continue with a project even if the team breaks up. The efforts of non owners to enhance productivity may then be devalued, but are typically not wholly lost on the project. This weakens the bargaining power of the non owner, considerably enlarging the circumstances under which outside options are consistent with ownership motivating. In addition, our analysis identifies the possibility that when the right agent owns not only do they put more effort into the enterprise, so does everyone else.

Suggested Citation

  • De Meza, D. & Lockwood, B., 1998. "Outside Options, Ownership and Incentives Revisited," Discussion Papers 9910, Exeter University, Department of Economics.
  • Handle: RePEc:exe:wpaper:9910
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    More about this item

    Keywords

    PROPERTY RIGHTS ; GAME THEORY ; DYNAMIC ANALYSIS ; INCENTIVES;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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