Asymmetric Information and the Property Rights Approach to the Theory of the Firm

Patrick Schmitz

No 12174, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: In the Grossman-Hart-Moore property rights approach to the theory of the firm, it is usually assumed that information is symmetric. Ownership matters for investment incentives, provided that investments are partly relationship-specific. We study the case of completely relationship-specific investments (i.e., the disagreement payoffs do not depend on the investments). It turns out that if there is asymmetric information, then ownership matters for investment incentives and for the expected total surplus. Specifically, giving ownership to party B can be optimal, even when only party A has to make an investment decision and even when the owner's expected disagreement payoff is larger under A-ownership.

Keywords: Property rights; Relationship specificity; Investment incentives; Private information; Incomplete contracts (search for similar items in EconPapers)
JEL-codes: D23 D82 D86 L23 L24 (search for similar items in EconPapers)
Date: 2017-07
New Economics Papers: this item is included in nep-com, nep-cta and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
https://cepr.org/publications/DP12174 (application/pdf)

Related works:
Journal Article: Asymmetric information and the property rights approach to the theory of the firm (2017)
Working Paper: Asymmetric Information and the Property Rights Approach to the Theory of the Firm (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:12174

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP12174

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().