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Expropriation risk and technology

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  • Opp, Marcus M.

Abstract

This paper develops a unified framework to analyze the dynamics of firm investment in countries with poor legal enforcement. The firm's technology edge over the government generates endogenous property rights. Industry variation in the technology gap predicts a sectoral pecking-order of expropriations. Long-run investment distortions may be Pareto superior relative to persistent investment at the static optimum. The dynamics of investment and transfers depend on whether incentives (backloading) or efficiency (frontloading) concerns dominate at the initial division of surplus. An increase in government efficiency may reduce its welfare. The model provides a technology-driven rationale for the widespread use of conglomerate structures in emerging market countries.

Suggested Citation

  • Opp, Marcus M., 2012. "Expropriation risk and technology," Journal of Financial Economics, Elsevier, vol. 103(1), pages 113-129.
    • Handle: RePEc:eee:jfinec:v:103:y:2012:i:1:p:113-129
    DOI: 10.1016/j.jfineco.2011.08.010
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    Cited by:

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    2. Akhtaruzzaman, M. & Berg, Nathan & Hajzler, Christopher, 2017. "Expropriation risk and FDI in developing countries: Does return of capital dominate return on capital?," European Journal of Political Economy, Elsevier, vol. 49(C), pages 84-107.
    3. Hajzler, Christopher, 2014. "Resource-based FDI and expropriation in developing economies," Journal of International Economics, Elsevier, vol. 92(1), pages 124-146.
    4. Jaakkola, Niko & Spiro, Daniel & van Benthem, Arthur A., 2019. "Finders, keepers?," Journal of Public Economics, Elsevier, vol. 169(C), pages 17-33.
    5. Lustig, Hanno & Syverson, Chad & Van Nieuwerburgh, Stijn, 2011. "Technological change and the growing inequality in managerial compensation," Journal of Financial Economics, Elsevier, vol. 99(3), pages 601-627, March.
    6. Chunmei Lin & Massimo Massa & Hong Zhang, 2014. "Mutual Funds and Information Diffusion: The Role of Country-Level Governance," Tinbergen Institute Discussion Papers 14-079/IV/DSF76, Tinbergen Institute.
    7. Xavier Freixas & Jean‐Charles Rochet, 2013. "Taming Systemically Important Financial Institutions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(s1), pages 37-58, August.
    8. Jean Guillaume Forand & Jan Zapal, 2017. "The Demand and Supply of Favours in Dynamic Relationships," Working Papers 1705, University of Waterloo, Department of Economics, revised Sep 2017.
    9. Roman Inderst & Marcus Opp & Florian Hoffmann, 2016. "Deferred compensation and risk-taking incentives," 2016 Meeting Papers 674, Society for Economic Dynamics.
    10. Christopher Hajzler & Jonathan Rosborough, 2016. "Government Corruption and Foreign Direct Investment Under the Threat of Expropriation," Staff Working Papers 16-13, Bank of Canada.
    11. Natalia Kovrijnykh, 2008. "Debt Contracts with Short-Term Commitment," 2008 Meeting Papers 558, Society for Economic Dynamics.
    12. Opp, Christian C. & Opp, Marcus M. & Harris, Milton, 2013. "Rating agencies in the face of regulation," Journal of Financial Economics, Elsevier, vol. 108(1), pages 46-61.
    13. Chen, Feiqiong & Zhong, Fangfang & Chen, Yao, 2014. "Outward foreign direct investment and sovereign risks in developing host country," Economic Modelling, Elsevier, vol. 41(C), pages 166-172.

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    More about this item

    Keywords

    Expropriation risk; Foreign direct investment; Dynamic contracting; Property rights; Self-enforcing contracts; Principal-agent models; Political risk;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F52 - International Economics - - International Relations, National Security, and International Political Economy - - - National Security; Economic Nationalism
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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