Working Paper: CEPR ID: DP3216
Authors: Niko Matouschek
Abstract: I develop a property rights theory of the firm in which managers bargain over the sharing of quasi-rents in the presence of private information. I analyse the interdependence between the ownership structure of firms and the bargaining inefficiency that is due to the presence of private information and derive the optimal ownership structure that minimizes the bargaining inefficiency. I first assume that managers can only contract over the ownership structure and show that they optimally choose one that minimizes (maximizes) their aggregate disagreement pay-off if the minimum expected quasi-rents are large (small). I then extend my analysis and allow the managers to contract over the ownership structure and the bargaining game that is played ex-post. I show that the main results continue to hold if and only if ownership structures are deterministic and cannot be made contingent on information that is revealed ex-post.
Keywords: bargaining inefficiency; private information; property rights; vertical integration
JEL Codes: D23; D82; L22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| ownership structure (G32) | bargaining inefficiency (C78) |
| ownership structure (G32) | managers' disagreement payoffs (C79) |
| managers' disagreement payoffs (C79) | bargaining outcomes (C78) |
| ownership structure (G32) | bargaining efficiency (D61) |
| expected quasirents (R21) | ownership structure (G32) |
| ownership structure (G32) | managers' bargaining behavior (C78) |
| managers' bargaining behavior (C78) | efficiency of trade (F12) |