The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration

Sanford Grossman and Oliver Hart

No 70, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: What determines how integrated a firm is? We emphasize the benefits of "control" when there are difficulties in writing complete contracts. We define the firm as being composed of its assets. We present a theory of costly contracts which emphasizes that contractual rights can be of two types: specific rights and residual rights. When it is too costly to list all specific rights over assets in the contract, it may be optimal to let one party purchase all residual rights. Ownership is the purchase of these residual rights. We show that there can be costs associated with the wrong allocation of residual rights.

Keywords: Contracts; Horizontal Integration; Theory of the Firm; Vertical Integration (search for similar items in EconPapers)
Date: 1985-07
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=70 (application/pdf)

Related works:
Journal Article: The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration (1986)
Working Paper: The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration (1986)
Working Paper: The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration (1985)
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:70

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... apers/dp.php?dpno=70

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 ().