Sequential investments and options to own
Contingent ownership structures are prevalent in joint ventures. We offer an explanation based on the investment incentives provided by such an arrangement. We consider a holdup problem in which two parties make relationship-specific investments sequentially to generate a joint surplus in the future. In our model, the following ownership structure implements first-best investments: one party owns the firm initially, while the other party has the option to buy the firm at a set price at a later date. This result is robust to the possibility of renegotiation and uncertainty.
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|Date of creation:||1998|
|Date of revision:|
|Publication status:||Published in RAND Journal of Economics 4 29(1998): pp. 633-653|
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