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Joint venture instability and monitoring

Author

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  • Prabal Roy Chowdhury

    (Indian Statistical Institute, New Delhi)

Abstract

In this paper we build a theory of joint venture formation and instability based on synergy and monitoring. We find that monitoring problems may prevent the joint venture from forming at all. Moreover, joint venture formation usually involves over-monitoring, and ex post could involve cheating by one, or both the firms. It is also possible that joint venture formation leads to zero monitoring by both the firms. We demonstrate that faced with the possibility of over-monitoring, firms may choose to under-invest in improving the input quality. We also develop some testable implications of our theory.

Suggested Citation

  • Prabal Roy Chowdhury, 2003. "Joint venture instability and monitoring," Discussion Papers 04-09, Indian Statistical Institute, Delhi.
    • Handle: RePEc:alo:isipdp:04-09
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    File URL: http://www.isid.ac.in/~pu/dispapers/dp04-09.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Joint venture; over-monitoring; under-monitoring; underinvestment;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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