Transaction costs and the property rights approach to the theory of the firm

Patrick Schmitz

No 10207, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The standard property rights approach is focused on ex ante investment incentives, while there are no transaction costs that might restrain ex post negotiations. We explore the implications of such transaction costs. Prominent conclusions of the property rights theory may be overturned: A party may have stronger investment incentives when a non-investing party is the owner, and joint ownership can be the uniquely optimal ownership structure. Intuitively, an ownership structure that is unattractive in the standard model may now be desirable, because it implies large gains from trade, such that the parties are more inclined to incur the transaction costs.

Keywords: Incomplete contracts; Property rights approach; Vertical integration; Joint ownership; Transaction costs (search for similar items in EconPapers)
JEL-codes: D23 D86 L24 (search for similar items in EconPapers)
Date: 2014-10
New Economics Papers: this item is included in nep-com and nep-cta
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Transaction costs and the property rights approach to the theory of the firm (2016)
Working Paper: Transaction costs and the property rights approach to the theory of the firm (2016)
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