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The cost of appropriation and firm boundaries

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  • Mori, Yusuke

Abstract

This study introduces an appropriation cost (i.e., cost of requesting rent-seeking-oriented contract renegotiation) in the property-rights theory (PRT) model. We show that significant appropriation-cost economization within a firm leads to the optimality of non-integrated structures, including joint ownership.

Suggested Citation

  • Mori, Yusuke, 2024. "The cost of appropriation and firm boundaries," Economics Letters, Elsevier, vol. 241(C).
    • Handle: RePEc:eee:ecolet:v:241:y:2024:i:c:s0165176524003008
    DOI: 10.1016/j.econlet.2024.111816
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    References listed on IDEAS

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    1. Hart, Oliver D & Moore, John, 1988. "Incomplete Contracts and Renegotiation," Econometrica, Econometric Society, vol. 56(4), pages 755-785, July.
    2. Nicholas Bloom & Luis Garicano & Raffaella Sadun & John Van Reenen, 2014. "The Distinct Effects of Information Technology and Communication Technology on Firm Organization," Management Science, INFORMS, vol. 60(12), pages 2859-2885, December.
    3. Wenjie Chen & Fariha Kamal, 2016. "The impact of information and communication technology adoption on multinational firm boundary decisions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 47(5), pages 563-576, June.
    4. 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.
    5. Luca Anderlini & Leonardo Felli, 2006. "Transaction Costs and the Robustness of the Coase Theorem," Economic Journal, Royal Economic Society, vol. 116(508), pages 223-245, January.
    6. Müller, Daniel & Schmitz, Patrick W., 2016. "Transaction costs and the property rights approach to the theory of the firm," European Economic Review, Elsevier, vol. 87(C), pages 92-107.
    7. Mori, Yusuke, 2017. "A formal model of firm boundaries and haggling," Economics Letters, Elsevier, vol. 156(C), pages 15-17.
    8. Gibbons, Robert, 2005. "Four forma(lizable) theories of the firm?," Journal of Economic Behavior & Organization, Elsevier, vol. 58(2), pages 200-245, October.
    9. Williamson, Oliver E, 1971. "The Vertical Integration of Production: Market Failure Considerations," American Economic Review, American Economic Association, vol. 61(2), pages 112-123, May.
    10. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
    11. Patrick W. Schmitz, 2006. "Information Gathering, Transaction Costs, and the Property Rights Approach," American Economic Review, American Economic Association, vol. 96(1), pages 422-434, March.
    12. Akitoshi Muramoto, 2013. "Strategic Determination of Renegotiation Costs," KIER Working Papers 877, Kyoto University, Institute of Economic Research.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Incomplete contracts; Rent-seeking theory; Hold-up problem; Property-rights theory; Internal organization;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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