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Temporary partnerships as an information transmission mechanism

  • Møllgaard, H. Peter

    (Department of Economics, Copenhagen Business School)

  • Overgaard, Per Baltzer

    (Department of Economics, Copenhagen Business School)

Asymmetric information and fear of acquiring a 'lemon' may explain the paucity of foreign investment in emerging market economies. If investors are uncertain about the profitability of investments, intrinsically inefficient, temporary partnerships or joint ventures may serve as mechanisms through which information is transmitted. Temporary partnerships with joint in- vestments by the domestic firm and the foreign investor, together with a buy-out option to the investor, can be used to separate good and bad invest- ment prospects in equilibrium. However, non-revealing equilibria may exist. Implications for foreign direct investment are traced and briefly related to the experience of transition economies. Keywords: investment, complementary assets, partnerships, joint ventures and licensing, costly signaling JEL: D8, F2, L14, O12

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Paper provided by Copenhagen Business School, Department of Economics in its series Working Papers with number 10-1998.

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Length: 25 pages
Date of creation: 01 Jan 1998
Date of revision:
Handle: RePEc:hhs:cbsnow:1998_010
Contact details of provider: Postal: Department of Economics, Copenhagen Business School, Solbjerg Plads 3 C, 5. sal, DK-2000 Frederiksberg, Denmark
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