Joint venture instability and monitoring

Prabal Roy Chowdhury ()
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Prabal Roy Chowdhury: Indian Statistical Institute, New Delhi

Discussion Papers from Indian Statistical Institute, Delhi

Abstract: In this paper we build a theory of joint venture formation and instability based on synergy and monitoring. We find that monitoring problems may prevent the joint venture from forming at all. Moreover, joint venture formation usually involves over-monitoring, and ex post could involve cheating by one, or both the firms. It is also possible that joint venture formation leads to zero monitoring by both the firms. We demonstrate that faced with the possibility of over-monitoring, firms may choose to under-invest in improving the input quality. We also develop some testable implications of our theory.

Keywords: Joint venture; over-monitoring; under-monitoring; underinvestment (search for similar items in EconPapers)
JEL-codes: F23 L13 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2003-01
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Persistent link: https://EconPapers.repec.org/RePEc:alo:isipdp:04-09

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