Profit Share and Partner Choice in International Joint Ventures

10 Pages Posted: 19 Jul 2010

See all articles by Litao Zhong

Litao Zhong

affiliation not provided to SSRN

Sajal Lahiri

Southern Illinois University Carbondale - Department of Economics

Abstract

This paper suggests a new approach to the determination of profit allocation between the partners in international joint ventures (IJVs). We also examine the issue of partnership choice. The foreign firm gives a large share of profits to its partner and in return receives a better tax treatment from the host government. Under linearity of costs and demand functions, it would choose the more efficient domestic firm as an IJV partner, and the domestic firms would happily accept the offer of partnership from the foreign firm. However, the host government, under certain situations, may persuade the foreign firm, by a suitable lump-sum transfer, to form a partnership with the less efficient firm.

Suggested Citation

Zhong, Litao and Lahiri, Sajal, Profit Share and Partner Choice in International Joint Ventures. Review of International Economics, Vol. 18, No. 3, pp. 552-561, August 2010. Available at SSRN: https://ssrn.com/abstract=1640850 or http://dx.doi.org/10.1111/j.1467-9396.2010.00911.x

Litao Zhong

affiliation not provided to SSRN

No Address Available

Sajal Lahiri (Contact Author)

Southern Illinois University Carbondale - Department of Economics ( email )

MC 415
1000 Faner Drive
Carbondale, IL 62901
United States

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