Sequential Investments and Options to Own

Georg Noeldeke and Klaus Schmidt ()
Authors registered in the RePEc Author Service: Georg Nöldeke

RAND Journal of Economics, 1998, vol. 29, issue 4, 633-653

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.

Date: 1998
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Citations: View citations in EconPapers (87)

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Related works:
Working Paper: 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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