Joint Ownership and Incomplete Contracts: The Case of Perfectly Substitutable Investments

Schmalenbach Business Review, Vol. 56, No. 1, pp. 72-89, January 2004

18 Pages Posted: 21 Apr 2004

See all articles by Stephanie Rosenkranz

Stephanie Rosenkranz

Utrecht University - School of Economics

Patrick W. Schmitz

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

Multiple version iconThere are 2 versions of this paper

Abstract

Prominent results of the property rights approach based on incomplete contracts as outlined by Hart (1995) say that all ownership structures lead to underinvestment and that joint ownership cannot be optimal, provided that investments are strategic complements and affect human capital only. We show that in cases where only the total amount invested matters, these conclusions are still true in the static setting, even if investments are in physical capital. However, if the parties can invest and generate a surplus twice, then joint ownership may imply first-best investments in the first stage and can well be the optimal ownership structure.

Keywords: Incomplete Contracts, Property Rights, Repeated Games

JEL Classification: D23, L14

Suggested Citation

Rosenkranz, Stephanie and Schmitz, Patrick W., Joint Ownership and Incomplete Contracts: The Case of Perfectly Substitutable Investments. Schmalenbach Business Review, Vol. 56, No. 1, pp. 72-89, January 2004. Available at SSRN: https://ssrn.com/abstract=533622

Stephanie Rosenkranz

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, 3584 EC
Netherlands
+31 30 253 9806 (Phone)
+31 30 253 7373 (Fax)

HOME PAGE: http://www.uu.nl/uupublish/defaculteit/persoonlijkepagi/rosenkranz/

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

Register to save articles to
your library

Register

Paper statistics

Downloads
222
Abstract Views
1,244
rank
129,713
PlumX Metrics