Does Asset Ownership Always Motivate Managers? The Property Rights Theory of the Firm with Alternating - Offers Bargaining

David de Meza and Ben Lockwood

Discussion Papers from University of Exeter, Department of Economics

Abstract: This paper studies the Hart-Grossmn-Moore property rights approach to the theory of the firm, under the alternative assumption that bargaining over gains from trade is modelled strategically, rather than axiomatically. With strategic bargaining, the disagreement payoffs (payoffs to the two managers if they do not trade with each other) affect the managers' agreement payoffs, and hence the incentive to invest, very differently than in the axiomatic case. A key result is that extra asset ownership may decrease incentives to invest. Sufficient conditions afor intgrateion and non-integration to be optimal that have been developed for the axiomatic case are shown not to apply to the strategic case. On the contrary, type i integration (giving all the assets to manager i ) is shown often to be desireable if motivation manager i ? j is particlularly important. Also, in contrast to the axiomatic case, no-trade prices have a role to play in improving efficience of investment.

Keywords: Theory of the firm; bargaining; transaction costs (search for similar items in EconPapers)
JEL-codes: D20 D23 L22 (search for similar items in EconPapers)
Date: 1997
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:exe:wpaper:9701

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