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Joint Ventures and the Property Rights Theory of the Firm: a Review of the Literature

Listed author(s):
  • Valeria Gattai
  • Piergiovanna Natale

Joint ventures (JVs) are a very common form of inter-firm collaborations and, not surprisingly, the object of a vast literature, spanning from economics to management and business studies. Issues of control are central to the definition of JV, which naturally begs an interpretation in the context of the property rights theory (PRT) of the firm. In a series of seminal papers, Grossman, Hart and Moore (GHM) offer a rigorous framework to predict the allocation of control rights. Notably, under the standard assumptions of GHM, JVs are suboptimal. However, JVs are not suboptimal in more general settings where some of the original framework’s assumptions are relaxed. In the context of the PRT, this paper surveys more than 20 contributions that deal with the optimality of JVs under contract incompleteness. Questioning GHM’s assumptions, the authors of these contributions unveil relevant circumstances in which JV outperforms sole ownership. Despite contributions being scattered over time and bibliographical space, we believe enough material has accumulated over 25 years of economic modelling to encourage some systematization. The discussion is organized in an intuitive and non-technical way; particular effort is devoted to analyse each contribution in detail and to provide a unitary framework.

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File URL: http://dems.unimib.it/repec/pdf/mibwpaper287.pdf
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Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 287.

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Length: 37
Date of creation: Dec 2014
Date of revision: Dec 2014
Handle: RePEc:mib:wpaper:287
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