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Does Asset Ownership Always Motivate Managers? The Property Rights Theory of the Firm with Alternating - Offers Bargaining

Author

Listed:
  • De Meza, D.
  • Lockwood, Ben

Abstract

This paper studies the Hart-Grossmn-Moore property rights approach to the theory of the firm, under the alternative assumption that bargaining over gains from trade is modelled strategically, rather than axiomatically. With strategic bargaining, the disagreement payoffs (payoffs to the two managers if they do not trade with each other) affect the managers' agreement payoffs, and hence the incentive to invest, very differently than in the axiomatic case. A key result is that extra asset ownership may decrease incentives to invest. Sufficient conditions afor intgrateion and non-integration to be optimal that have been developed for the axiomatic case are shown not to apply to the strategic case. On the contrary, type i integration (giving all the assets to manager i ) is shown often to be desireable if motivation manager i ? j is particlularly important. Also, in contrast to the axiomatic case, no-trade prices have a role to play in improving efficience of investment.

Suggested Citation

  • De Meza, D. & Lockwood, Ben, 1997. "Does Asset Ownership Always Motivate Managers? The Property Rights Theory of the Firm with Alternating - Offers Bargaining," Discussion Papers 9701, University of Exeter, Department of Economics.
    • Handle: RePEc:exe:wpaper:9701
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    Citations

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    Cited by:

    1. David Kelsey & Frank Milne, 2008. "Imperfect Competition and Corporate Governance," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(6), pages 1115-1141, December.
    2. Professor Yong Kim & Univ. Southern California, 2004. "Asset ownership and Asset Values Over Project Lifecycles," Econometric Society 2004 Far Eastern Meetings 604, Econometric Society.
    3. 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.
    4. Antonio Nicita & Simone Sepe, 2010. "Optimal Contract Design with Unilateral Market Option," Department of Economics University of Siena 593, Department of Economics, University of Siena.
    5. Schmitz, Patrick W, 2001. "The Hold-up Problem and Incomplete Contracts: A Survey of Recent Topics in Contract Theory," Bulletin of Economic Research, Wiley Blackwell, vol. 53(1), pages 1-17, January.
    6. Patrick W. Schmitz, 2001. "Partial Privatization and Incomplete Contracts: The Proper Scope of Government Reconsidered," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 57(4), pages 394-411, August.
    7. Patrick Bolton & Chenggang Xu, 1998. "Ownership and Managerial competition: Employee, Customer, or Outside Ownership," William Davidson Institute Working Papers Series 174, William Davidson Institute at the University of Michigan.

    More about this item

    Keywords

    Theory of the firm; bargaining; transaction costs;
    All these keywords.

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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