 Moral hazard and the property rights approach to the theory of the firmEconomics Letters, 2020, vol. 186, issue C Abstract: In the Grossman–Hart–Moore property rights theory, there are no frictions ex post (i.e., after non-contractible investments have been sunk). In contrast, in transaction cost economics ex-post frictions play a central role. We bring the property rights theory closer to transaction cost economics by allowing for ex-post moral hazard. As a consequence, central conclusions of the Grossman–Hart–Moore theory may be overturned. In particular, even though only party A has to make an investment decision, B-ownership can yield higher investment incentives. Moreover, ownership matters even when investments are fully relationship-specific (i.e., when they have no impact on the parties’ disagreement payoffs). Keywords: Incomplete contracts; Ownership rights; Investment incentives; Relationship specificity; Moral hazard (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:186:y:2020:i:c:s0165176519302393 DOI: 10.1016/j.econlet.2019.06.020 Access Statistics for this article Economics Letters is currently edited by Economics Letters Editorial Office More articles in Economics Letters from Elsevier |
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