Working Paper: CEPR ID: DP5369
Authors: Ernst Fehr; Susanne Kremhelmer; Klaus M. Schmidt
Abstract: We report on several experiments on the optimal allocation of ownership rights. The experiments confirm the property rights approach by showing that the ownership structure affects relationship-specific investments and that subjects attain the most efficient ownership allocation despite starting from different initial conditions. However, in contrast to the property rights approach, the most efficient ownership structure is joint ownership. These results are neither consistent with the self-interest model nor with models that assume that all people behave fairly, but they can be explained by the theory of inequity aversion that focuses on the interaction between selfish and fair players.
Keywords: double moral hazard; fairness; incomplete contracts; ownership rights; reciprocity
JEL Codes: C7; C9; J3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| ownership structure (G32) | relationship-specific investments (D14) |
| joint ownership (R21) | investment efficiency (G14) |
| sole ownership (L67) | investment efficiency (G14) |
| joint ownership (R21) | higher investments (G31) |
| fairness and reciprocity (D63) | investment levels (F21) |
| joint ownership (R21) | better investment incentives (G31) |
| investment levels (F21) | actions of other player (C72) |