Does Asset Ownership Always Motivate Managers? Outside Options and the Property Rights Theory of the Firm

David de Meza and Ben Lockwood

The Quarterly Journal of Economics, 1998, vol. 113, issue 2, 361-386

Abstract: This paper studies the Grossman-Hart-Moore (GHM) "property rights" approach to the theory of the firm under alternating-offers bargaining. When managers can pursue other occupations while negotiating over the division of the gains from cooperation, the GHM results obtain. If taking the best alternative job terminates bargaining, outcomes are very different. Sometimes an agent with an important investment decision should not own the assets he works with; sometimes independent assets should be owned together; sometimes strictly complementary assets should be owned separately.

Date: 1998
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