Universität zu Köln

Schmitz, Patrick W. (2019). Incomplete contracts, limited liability, and the optimality of joint ownership. Econ. Lett., 183. LAUSANNE: ELSEVIER SCIENCE SA. ISSN 1873-7374

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Abstract

The property rights approach to the theory of the firm is the most prominent application of the incomplete contracting paradigm. A central conclusion of the standard model says that joint ownership is suboptimal. We analyze a modified version of the standard model that is tailored to the organization of R&D activities, where one of the parties is wealth-constrained and protected by limited liability. It turns out that joint ownership can be optimal, since it avoids wasteful rent-seeking activities when limited liability rents are necessary to induce high effort. Our results are in line with the fact that R&D activities are often conducted in research joint ventures. (C) 2019 The Author. Published by Elsevier B.V.

Item Type:	Journal Article
Creators:	Creators Email ORCID ORCID Put Code Schmitz, Patrick W. UNSPECIFIED UNSPECIFIED UNSPECIFIED
URN:	urn:nbn:de:hbz:38-133095
DOI:	10.1016/j.econlet.2019.108558
Journal or Publication Title:	Econ. Lett.
Volume:	183
Date:	2019
Publisher:	ELSEVIER SCIENCE SA
Place of Publication:	LAUSANNE
ISSN:	1873-7374
Language:	English
Faculty:	Unspecified
Divisions:	Unspecified
Subjects:	no entry
Uncontrolled Keywords:	Keywords Language PROPERTY-RIGHTS; OPTIMAL ALLOCATION; TRANSACTION COSTS; MORAL HAZARD; JOB DESIGN Multiple languages Economics Multiple languages
Refereed:	Yes
URI:	http://kups.ub.uni-koeln.de/id/eprint/13309