IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/1910.html
   My bibliography  Save this paper

Production Complementarity and Investment Incentives: Does Asset Ownership Matter?

Author

Listed:
  • Mumcu, Ayse

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 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.

Suggested Citation

  • Mumcu, Ayse, 2006. "Production Complementarity and Investment Incentives: Does Asset Ownership Matter?," MPRA Paper 1910, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:1910
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/1910/1/MPRA_paper_1910.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Michael D. Whinston, 2001. "Assessing the Property Rights and Transaction-Cost Theories of Firm Scope," American Economic Review, American Economic Association, vol. 91(2), pages 184-188, May.
    2. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-1158, December.
    3. Bengt Holmstrom & John Roberts, 1998. "The Boundaries of the Firm Revisited," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 73-94, Fall.
    4. Ken Binmore & Avner Shared & John Sutton, 1989. "An Outside Option Experiment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(4), pages 753-770.
    5. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    6. John Sutton, 1986. "Non-Cooperative Bargaining Theory: An Introduction," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(5), pages 709-724.
    7. Shaked, Avner & Sutton, John, 1984. "Involuntary Unemployment as a Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 52(6), pages 1351-1364, November.
    8. David de Meza & Ben Lockwood, 1998. "Does Asset Ownership Always Motivate Managers? Outside Options and the Property Rights Theory of the Firm," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(2), pages 361-386.
    9. Holmstrom, Bengt R. & Tirole, Jean, 1989. "The theory of the firm," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 2, pages 61-133, Elsevier.
    10. Chiu, Y Stephen, 1998. "Noncooperative Bargaining, Hostages, and Optimal Asset Ownership," American Economic Review, American Economic Association, vol. 88(4), pages 882-901, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ayse Mumcu, 2006. "Product Complementarity and Investment Incentives: Does Asset Ownership Matter?," Working Papers 2006/05, Bogazici University, Department of Economics.
    2. Chatterjee Kalyan & Chiu Y. Stephen, 2007. "When Does Competition Lead to Efficient Investments?," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-39, July.
    3. Anke S. Kessler & Christoph Lülfesmann, 2006. "The Theory of Human Capital Revisited: on the Interaction of General and Specific Investments," Economic Journal, Royal Economic Society, vol. 116(514), pages 903-923, October.
    4. Robert Gibbons & John Roberts, 2012. "The Handbook of Organizational Economics," Economics Books, Princeton University Press, edition 1, volume 1, number 9889.
    5. Schmitz, Patrick W., 2014. "Optimal ownership of public goods reconsidered," Economics Letters, Elsevier, vol. 125(1), pages 21-24.
    6. Kvaløy, Ola, 2008. "Do norms matter for firm boundaries?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(3), pages 969-975, June.
    7. Thiele, Veikko, 2007. "The Demand for Tailored Goods and the Theory of the Firm," MPRA Paper 2471, University Library of Munich, Germany.
    8. Christian A. Ruzzier, 2009. "Asset Specificity and Vertical Integration: Williamson’s Hypothesis Reconsidered," Harvard Business School Working Papers 09-119, Harvard Business School.
    9. Castaneda, Marco A., 2006. "The hold-up problem in a repeated relationship," International Journal of Industrial Organization, Elsevier, vol. 24(5), pages 953-970, September.
    10. Oliver Hart & Bengt Holmstrom, 2010. "A Theory of Firm Scope," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(2), pages 483-513.
    11. 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.
    12. Schmitz, Patrick W., 2015. "Government versus private ownership of public goods: The role of bargaining frictions," Journal of Public Economics, Elsevier, vol. 132(C), pages 23-31.
    13. Ilya Segal & Michael D.Whinston, 2012. "Property Rights [The Handbook of Organizational Economics]," Introductory Chapters,, Princeton University Press.
    14. Andreas Roider, 2004. "Asset Ownership and Contractibility of Interaction," RAND Journal of Economics, The RAND Corporation, vol. 35(4), pages 787-802, Winter.
    15. David de Meza & Mariano Selvaggi, 2004. "Exclusive Contracts Foster Relationship-Specific Investment," The Centre for Market and Public Organisation 04/105, The Centre for Market and Public Organisation, University of Bristol, UK.
    16. Matouschek, Niko, 2002. "Information and the Optimal Ownership Structure of Firms," CEPR Discussion Papers 3216, C.E.P.R. Discussion Papers.
    17. Gürtler, Oliver, 2006. "Optimal Ownership Structures in the Presence of Investment Signals," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 103, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    18. Maija Halonen‐Akatwijuka, 2010. "Organizational Design, Technology and the Boundaries of the Firm," Economica, London School of Economics and Political Science, vol. 77(307), pages 544-564, July.
    19. Susheng Wang & Tian (Tim) Zhu, 2000. "Bargaining, Revenue Sharing and Control Rights Allocation," Econometric Society World Congress 2000 Contributed Papers 0373, Econometric Society.
    20. Chong-En Bai & Zhigang Tao & Changqi Wu, 2004. "Revenue Sharing and Control Rights in Team Production: Theories and Evidence from Joint Ventures," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 277-305, Summer.

    More about this item

    Keywords

    organizational behaviour; transaction costs; property rights;
    All these keywords.

    JEL classification:

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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:1910. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.