Termination Clauses in Partnerships

Stefano Comino (), Antonio Nicolo' and Piero Tedeschi ()

Industrial Organization from University Library of Munich, Germany

Abstract: In this paper, we prove that two firms can choose not to include a termination clause in their partnership contract, thus inducing a costly termination in case of failure of the joint project. This ex-post inefficiency induces partners to exert large non-contractible efforts (investments) to decrease the probability of failure. Therefore, the absence of a termination clause works as a ``discipline device''\ that mitigates the moral hazard problem within the partnership. We show that writing a contract without a termination clause is a credible commitment even when partners can add such a clause in the contract in any moment of their relationship.

Keywords: moral hazard; termination clauses; partnerships; joint ventures (search for similar items in EconPapers)
JEL-codes: D82 K12 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2005-09-14
New Economics Papers: this item is included in nep-law
Note: Type of Document - pdf; pages: 35
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://econwpa.ub.uni-muenchen.de/econ-wp/io/papers/0509/0509007.pdf (application/pdf)

Related works:
Journal Article: Termination clauses in partnerships (2010)
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:wpa:wuwpio:0509007

Access Statistics for this paper

More papers in Industrial Organization from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA ( this e-mail address is bad, please contact ).