Working Paper: CEPR ID: DP10207
Authors: Daniel Müller; Patrick W. Schmitz
Abstract: The standard property rights approach is focused on ex ante investment incentives, while there are no transaction costs that might restrain ex post negotiations. We explore the implications of such transaction costs. Prominent conclusions of the property rights theory may be overturned: A party may have stronger investment incentives when a non-investing party is the owner, and joint ownership can be the uniquely optimal ownership structure. Intuitively, an ownership structure that is unattractive in the standard model may now be desirable, because it implies large gains from trade, such that the parties are more inclined to incur the transaction costs.
Keywords: Incomplete Contracts; Joint Ownership; Property Rights Approach; Transaction Costs; Vertical Integration
JEL Codes: D23; D86; L24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| transaction costs (D23) | ownership by non-investing party (bownership) (G32) |
| transaction costs (D23) | ownership by investing party (aownership) (G32) |
| transaction costs (D23) | joint ownership (R21) |
| ownership structure (G32) | decision to incur transaction costs (D23) |
| transaction costs (D23) | expected surplus from collaboration (D26) |
| joint ownership (R21) | incentives to incur transaction costs (D23) |