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Revenue Sharing and Control Rights in Team Production: Theories and Evidence from Joint Ventures.

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  • Chong-En Bai
  • Zhigang Tao
  • Changqi Wu

Abstract

This paper presents a model of the joint venture that is grounded in the stylized facts we found from a sample of 200 joint venture contracts. The model incorporates the revenue-sharing contract into the incomplete contract frameworks of Grossman-Hart-Moore Property Rights Theory and the Transaction Cost Theory of the firm, and emphasizes the impact of expropriation. Joint control can be optimal as well as unilateral control. Our econometric analysis of the revenue-sharing and control arrangements o?ers strong support to our Property-Rights-Theory motivated model with self investment but rejects that with cooperative investment. The Transaction-Cost-Theory motivated model leaves some important empirical findings unexplained. Our findings also reject some of the existing theories of joint ownership.

Suggested Citation

  • Chong-En Bai & Zhigang Tao & Changqi Wu, 2003. "Revenue Sharing and Control Rights in Team Production: Theories and Evidence from Joint Ventures.," William Davidson Institute Working Papers Series 2003-563, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:2003-563
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    Cited by:

    1. Valeria Gattai & Piergiovanna Natale, 2017. "A New Cinderella Story: Joint Ventures And The Property Rights Theory Of The Firm," Journal of Economic Surveys, Wiley Blackwell, vol. 31(1), pages 281-302, February.
    2. Ari Van Assche & Galina A. Schwartz, 2013. "Contracting Institutions and Ownership Structure in International Joint Ventures," CIRANO Working Papers 2013s-04, CIRANO.
    3. Ying Ge & Yasheng Chen, 2008. "Foreign Ownership and Productivity of Joint Ventures," Economic Development and Cultural Change, University of Chicago Press, vol. 56(4), pages 895-920, July.
    4. Gattai, Valeria & Natale, Piergiovanna, 2013. "What makes a joint venture: Micro-evidence from Sino-Italian contracts," Review of Financial Economics, Elsevier, vol. 22(4), pages 194-205.
    5. Paija, Laura, 2004. "Allocation of Control Rights to Customised Products: Empirical Analysis of Finnish SMEs," Discussion Papers 918, The Research Institute of the Finnish Economy.
    6. Ilya R. P. Cuypers & Gokhan Ertug & Jeffrey J. Reuer & Ben Bensaou, 2017. "Board representation in international joint ventures," Strategic Management Journal, Wiley Blackwell, vol. 38(4), pages 920-938, April.
    7. Carluccio, Juan & Bas, Maria, 2015. "The impact of worker bargaining power on the organization of global firms," Journal of International Economics, Elsevier, vol. 96(1), pages 162-181.
    8. Guillaume Roels & Uday S. Karmarkar & Scott Carr, 2010. "Contracting for Collaborative Services," Management Science, INFORMS, vol. 56(5), pages 849-863, May.
    9. Aguir, Iness & Misra, Lalatendu, 2017. "Ownership level choice and value creation in international joint ventures: The role of investor protection," International Review of Economics & Finance, Elsevier, vol. 49(C), pages 515-535.
    10. Che, Jiahua & Facchi, Giovanni, 2007. "Cultural Differences, Insecure Property Rights and the Mode of Entry Decision," Economics Discussion Papers 8916, University of Essex, Department of Economics.
    11. Van Assche, Ari & Schwartz, Galina A., 2013. "Contracting institutions and ownership structure in international joint ventures," Journal of Development Economics, Elsevier, vol. 103(C), pages 124-132.
    12. Charlie Joyez, 2017. "Firm heterogeneity and the integration trilemma: The utility of Joint ventures in integration versus outsourcing models," Working Papers DT/2017/09, DIAL (Développement, Institutions et Mondialisation).
    13. Cheng, Leonard K. & Qiu, Larry D. & Tan, Guofu, 2005. "Foreign direct investment and international trade in a continuum Ricardian trade model," Journal of Development Economics, Elsevier, vol. 77(2), pages 477-501, August.
    14. Duanmu, Jing-Lin & Lawton, Thomas, 2021. "Foreign buyout of international equity joint ventures in China: When does performance improve?," Journal of World Business, Elsevier, vol. 56(5).
    15. Qiangbing Chen & Yali Liu & Lu Jiang, 2010. "Culture distance and foreign equity ownership in international joint ventures: Evidence from China," Journal of Chinese Economic and Foreign Trade Studies, Emerald Group Publishing, vol. 3(3), pages 189-203, October.
    16. Bai, Chong-En & Lu, Jiangyong & Tao, Zhigang, 2010. "Capital or knowhow: The role of foreign multinationals in Sino-foreign joint ventures," China Economic Review, Elsevier, vol. 21(4), pages 629-638, December.
    17. Ari Van Assche & Galina A. Schwartz, 2008. "Institutions and Multinational Ownership Strategy," CIRANO Working Papers 2008s-07, CIRANO.
    18. Valeria Gattai & Piergiovanna Natale, 2014. "Joint Ventures and the Property Rights Theory of the Firm: a Review of the Literature," Working Papers 287, University of Milano-Bicocca, Department of Economics, revised Dec 2014.
    19. Moskalev, Sviatoslav A. & Swensen, R. Bruce, 2007. "Joint ventures around the globe from 1990-2000: Forms, types, industries, countries and ownership patterns," Review of Financial Economics, Elsevier, vol. 16(1), pages 29-67.
    20. Zhang, Xiaoxiang & Wen, Jie, 2016. "The impacts of economic importance difference of a joint venture (JV) held by partners and partners' size difference on the extraction of rivalrous and non-rivalrous private benefits in a JV," International Review of Financial Analysis, Elsevier, vol. 48(C), pages 46-54.
    21. Jota Ishikawa & Yoichi Sugita & Laixun Zhao, 2009. "Corporate Control, Foreign Ownership Regulations and Technology Transfer," The Economic Record, The Economic Society of Australia, vol. 85(269), pages 197-209, June.
    22. Charlie Joyez, 2018. "Interaction between firm-level and host-country characteristics and multinationals' integration choices," Working Papers DT/2018/03, DIAL (Développement, Institutions et Mondialisation).

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    More about this item

    Keywords

    Joint Ventures; Control Right; Revenue-Sharing Contracts; Expropriation; Theory of the Firm;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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