Termination Clauses in Partnerships
Stefano Comino (),
Antonio Nicolo' () and
Piero Tedeschi ()
No 20060505, Working Papers from Università degli Studi di Milano-Bicocca, Dipartimento di Statistica
In this paper, we prove that two firms may prefer not to include a termination clause in their partnership contract, thus inducing a costly termination in case of failure of the joint project. This ex-post inefficiency induces partners to exert large levels of non-contractible efforts (investments) in order to decrease the probability of failure. Therefore, the absence of a termination clause works as a "discipline device" that mitigates the hold-up problem within the partnership. We show that writing a contract without a termination clause is a credible commitment even when partners can add such a clause in the contract in any moment of their relationship. Comparative statics analysis suggests that contracts lacking a termination clause are suited to alliances in R&D, when partners are not rivals or when they have strong technological complementarities.
Keywords: hold-up; termination clauses; partnerships; joint ventures (search for similar items in EconPapers)
JEL-codes: D82 K12 L24 (search for similar items in EconPapers)
Pages: 41 pages
New Economics Papers: this item is included in nep-law
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http://www.statistica.unimib.it/utenti/WorkingPapers/WorkingPapers/20060505.pdf First version, May 2006 (application/pdf)
Journal Article: Termination clauses in partnerships (2010)
Working Paper: Termination Clauses in Partnerships (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:mis:wpaper:20060505
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