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Joint Ownership And Incomplete Contracts: The Case Of Perfectly Substitutable Investments

Stephanie Rosenkranz () and Patrick Schmitz

Schmalenbach Business Review (sbr), 2004, vol. 56, issue 1, 72-89

Abstract: Important results of the property rights approach based on incomplete contracts, as outlined by Hart (1995), say that all ownership structures lead to underinvestment and that joint ownership cannot be optimal, provided that investments are strategic complements and affect human capital only. We show that when only the total amount invested matters, these conclusions are still true in a static setting, even if investments are in physical capital. However, if the parties can invest and generate a surplus twice, then joint ownership may imply first-best investments in the first stage and can well be the optimal ownership structure.

Keywords: Incomplete Contracts; Property Rights; Repeated Games. (search for similar items in EconPapers)
JEL-codes: D23 L14 (search for similar items in EconPapers)
Date: 2004
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Handle: RePEc:sbr:abstra:v:56:y:2004:i:1:p:72-89