Noncooperative Bargaining, Hostages, and Optimal Asset Ownership

Y. Chiu ()

American Economic Review, 1998, vol. 88, issue 4, 882-901

Abstract: This paper re-examines the effect of asset ownership on investment decisions for a joint relationship in the absence of contracts on investment levels. It obtains some results which contradict findings by Sanford J. Grossman, Oliver D. Hart, and John Moore. In particular, it finds that the loss of ownership of an asset may increase the asset loser's investment incentive. The difference between this paper and those authors' papers stems from the different interpretations of the roles of the threat point and outside options in bargaining. This paper also clarifies the role of relationship-specific investments as a cause of integration. Copyright 1998 by American Economic Association.

Date: 1998
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