Asymmetric information and the property rights approach to the theory of the firm

Patrick Schmitz

Economics Letters, 2017, vol. 159, issue C, 96-99

Abstract: In the Grossman–Hart–Mooreproperty rights approach to the theory of the firm, it is usually assumed that information is symmetric. Ownership matters for investment incentives, provided that investments are partly relationship-specific. We study the case of completely relationship-specific investments (i.e., the disagreement payoffs do not depend on the investments). It turns out that if there is asymmetric information, then ownership matters for investment incentives and for the expected total surplus. Specifically, giving ownership to party B can be optimal, even when only party A has to make an investment decision and even when the owner’s expected disagreement payoff is larger under A-ownership.

Keywords: Property rights; Relationship specificity; Investment incentives; Private information; Incomplete contracts (search for similar items in EconPapers)
JEL-codes: D23 D82 D86 L23 L24 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Working Paper: Asymmetric Information and the Property Rights Approach to the Theory of the Firm (2017)
Working Paper: Asymmetric Information and the Property Rights Approach to the Theory of the Firm (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:159:y:2017:i:c:p:96-99

DOI: 10.1016/j.econlet.2017.07.026

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