Bargaining Position, Bargaining Power, and the Property Rights Approach

15 Pages Posted: 1 Feb 2013

See all articles by Patrick W. Schmitz

Patrick W. Schmitz

University of Cologne; Centre for Economic Policy Research (CEPR)

Date Written: January 2013

Abstract

In the property rights approach to the theory of the firm (Hart, 1995), parties bargain about whether or not to collaborate after non-contractible investments have been made. Most contributions apply the regular Nash bargaining solution. We explore the implications of using the generalized Nash bargaining solution. A prominent finding regarding the suboptimality of joint ownership turns out to be robust. However, in contrast to the standard property rights model, it may well be optimal to give ownership to a party whose investments are less productive, provided that this party's ex-post bargaining power is relatively small.

Keywords: bargaining, incomplete contracts, investment incentives, ownership

JEL Classification: C78, D23, D86, L23

Suggested Citation

Schmitz, Patrick W., Bargaining Position, Bargaining Power, and the Property Rights Approach (January 2013). CEPR Discussion Paper No. DP9281. Available at SSRN: https://ssrn.com/abstract=2210251

Patrick W. Schmitz (Contact Author)

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

HOME PAGE: http://schmitz.uni-koeln.de/index.php?s=mitarbeiter&t=schmitz

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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