Information Gathering, Transaction Costs and the Property Rights Approach

Schmitz, Patrick W.

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Information Gathering, Transaction Costs and the Property Rights Approach

CEPR Discussion Paper No. 5417

30 Pages Posted: 27 Mar 2006

See all articles by Patrick W. Schmitz

Patrick W. Schmitz

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

There are 2 versions of this paper

Date Written: December 2005

Abstract

The property rights approach to the theory of the firm suggests that ownership structures are chosen in order to provide ex ante investment incentives, while bargaining is ex post efficient. In contrast, transaction cost economics emphasizes ex post inefficiencies. In the present paper, a party may invest and acquire private information about the default payoff that it can realize on its own. Inefficient rent-seeking can overturn prominent implications of the property rights theory. In particular, ownership by party B may be optimal, even though only the indispensable party A makes an investment decision.

Keywords: Theory of the firm, incomplete contracts, ownership rights

JEL Classification: D23, L14, L22

Suggested Citation: Suggested Citation

Schmitz, Patrick W., Information Gathering, Transaction Costs and the Property Rights Approach (December 2005). CEPR Discussion Paper No. 5417, Available at SSRN: https://ssrn.com/abstract=893572