Sequential Investments and Options to Own

Klaus Schmidt ()

No 160, CESifo Working Paper Series from CESifo

Abstract: Contingent ownership structures are prevalent in joint ventures. This paper offers an explanation based on the investment incentives provided by such an arrangement. We consider a hold-up problem in which two parties make relationship-specific investments sequentially in order to generate a joint surplus in the future. In our model, the following ownership structure implements first best investments: one party owns the firm initially, while the other party has the option to buy the firm at a set price at a later date. This result is robust to the possibility of renegotiation and uncertainty.

Keywords: Options; Convertible Securities; Property Rights; Incomplete Contracts (search for similar items in EconPapers)
Date: 1998
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Citations: View citations in EconPapers (101)

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Related works:
Journal Article: Sequential Investments and Options to Own (1998)
Working Paper: Sequential investments and options to own (1998)
Working Paper: Sequential Investments and Options to Own (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_160

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