Ownership Structure and Technological Upgrading in International Joint Ventures

16 Pages Posted: 27 May 2004

See all articles by Ping Lin

Ping Lin

Lingnan University - Department of Economics

Kamal Saggi

Southern Methodist University (SMU) - Department of Economics

Abstract

In a model of a joint venture between a local and a foreign firm who provide complementary inputs, this paper derives optimal ownership structures under different sharing rules. The local firm's profits may be maximized by assigning a majority share to the foreign firm. Efficiency (i.e., the minimization of double moral hazard) requires that the firm with the more productive input should get majority ownership. When only the foreign firm can upgrade its input, it should receive a larger share than what it receives in the absence of upgrading. The analysis implies that a blanket policy of prohibiting majority foreign ownership is theoretically unfounded.

Suggested Citation

Lin, Ping and Saggi, Kamal, Ownership Structure and Technological Upgrading in International Joint Ventures. Available at SSRN: https://ssrn.com/abstract=531759

Ping Lin (Contact Author)

Lingnan University - Department of Economics ( email )

135 Xingang Xi Road
Tuen Mun
Guangzhou, Guangzhou 510275
China
(852)2616 7203 (Phone)
(852)2891 7940 (Fax)

Kamal Saggi

Southern Methodist University (SMU) - Department of Economics ( email )

Dallas, TX 75275
United States
214-768-3274 (Phone)
214-768-1821 (Fax)

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