Sequential investments and options to own

Georg Nöldeke and Klaus Schmidt ()

Munich Reprints in Economics from University of Munich, Department of Economics

Abstract: Contingent ownership structures are prevalent in joint ventures. We offer an explanation based on the investment incentives provided by such an arrangement. We consider a holdup problem in which two parties make relationship-specific investments sequentially to generate a joint surplus in the future. In our model, the following ownership structure implements first-best investments: one party owns the firm initially, while the other party has the option to buy the firm at a set price at a later date. This result is robust to the possibility of renegotiation and uncertainty.

Keywords: Options contracts; Return on investment; Ownership rights; Investment decisions; Surplus; Induced investment; Price efficiency; Joint ownership; Bargaining power; Structural capital (search for similar items in EconPapers)
Date: 1998
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Citations: View citations in EconPapers (108)

Published in RAND Journal of Economics 4 29(1998): pp. 633-653

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Related works:
Journal Article: Sequential Investments and Options to Own (1998)
Working Paper: Sequential Investments and Options to Own (1998)
Working Paper: Sequential Investments and Options to Own (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:lmu:muenar:19327

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