On the Role of Investments and the Nature of Residual Control Rights
Posted: 7 Mar 2015
Date Written: March 6, 2015
Using the transaction as originally formulated by John R. Commons as the unit of analysis (Oliver Williamson recognizes that Commons’ notion of transaction is the basic unit of analysis of transaction cost economics), in this paper I show three results: (i) how specific investments can be a safeguard from, rather than the cause of, opportunistic behaviors, (ii) if and when residual control rights can reduce, rather than increase, incentives to invest, and (iii) why the standard definition of residual control right as right in personam is too narrow.
Keywords: Incomplete contracts, Residual Control Rights, Specific Investments, Endogenous Outside Options
JEL Classification: D23, L12, L14, L21, L22, L42
Suggested Citation: Suggested Citation