Title: Production Complementarity and Investment Incentives: Does Asset Ownership Matter?
Abstract:This paper analyzes the role of the initial allocation of ownership rights in transactions where parties make relationship-specific investments and contracts are incomplete. If there is high mutual de...This paper analyzes the role of the initial allocation of ownership rights in transactions where parties make relationship-specific investments and contracts are incomplete. If there is high mutual dependence in production, the initial allocation of ownership rights is irrelevant. This result contrasts with Grossman and Hart (1986), who, using a similar model, obtain that the ownership rights should be allocated to minimize ex-ante inefficiencies in production and assets should be owned by the party whose investment is most productive. The critical element behind these two different results is that while Grossman and Hart (1986) model uses the Nash bargaining solution treating status quo payoffs as disagreement points, here they are treated as outside options. The model also shows that, when relevant, asset ownership may provide disincentive to invest.Read More
Publication Year: 2006
Publication Date: 2006-05-01
Language: en
Type: preprint
Access and Citation
AI Researcher Chatbot
Get quick answers to your questions about the article from our AI researcher chatbot