a model of the origins of basic property rights this paper studies the origins of one of the most basic of property rights namely the right of an individual or an organization to the fruits of its labour my objective is to address the questions of why when and how this property right can emerge and be made secure i develop a model of the strategic interaction between two players in the state of nature which is an environment characterized by the absence of any laws and institutions including property rights and the state my analysis explores in particular the roles of the players fightin g and productive skills on the emergence and security or otherwise of this property right

control rights in complex partnerships this paper develops a theory of the allocation of authority between two players who are in a complex partnership that is a partnership which produces impure public goods we show that the optimal allocation depends on technological factors the parties valuations of the goods produced and the degree of impurity of these goods when the degree of impurity is large control rights should be given to the main investor irrespective of preference considerations there are some situations in which this allocation is optimal even if the degree of impurity is very low as long as one party s investment is more important than the other party s if the parties investments are of similar importance and the degree of impurity is large shared authority is optimal with a greater share going to the low valuation party if the importance of the parties investments is similar but the degree of impurity is neither large nor small the low valuation party should receive sole authority we analyze an extension in which side payments are infeasible we check for robustness of our results in several dimensions such as allowing for multiple parties or for joint authority and apply our results to interpret a number of complex partnerships including those involving schools and child custody jel d02 o23 h41 l31

transaction costs and the robustness of the coase theorem this paper explores the extent to which the presence of ex ante transaction costs may lead to failures of the coase theorem in particular we identify and investigate the basic hold up problem which arises whenever the parties to a coasian negotiation have to pay some ex ante costs for the negotiation to take place we then show that a coasian solution to this hold up problem is not available this is because a coasian solution to the hold up problem typically entails a negotiation about the payment of the costs associated with the future negotiation which in turn is associated with a fresh set of ex ante costs and hence with a new hold up problem

spillovers investment incentives and the property rights theory of the firm this paper examines the property rights theory of the firm when a manager s relationship specific investment can be partially appropriated by the owner of an asset even if cooperation breaks down the investments of non owners may then be devalued but are seldom wholly lost to the owner with such spillovers the outside option principle can be incorporated into the grossman hart moore framework without implying that ownership demotivates enriched predictions on the determinants of integration emerge

exclusive contracts and protection of investments we consider the effect of a renegotiable exclusive contract restricting a buyer to purchase from only one seller on the levels of noncontractible investments undertaken in their relationship contrary to some informal claims in the literature we find that exclusivity has no effect when all investments are fully specific to the relationship i e are purely internal exclusivity does matter when investments affect the value of the buyer s trade with other sellers i e have external effects we examine the effects of exclusivity on investments and aggregate welfare and the private incentives of the buyer seller coalition to use it

one to many bargaining when pairwise agreements are non renegotiable abstract we study a model where a central player the principal bargains bilaterally with each of several players the agents to create and share the surplus of a coalitional game it is known that if the payments that were previously agreed with each of the remaining agents are renegotiated in case any bilateral negotiation permanently breaks down then the shapley value is the unique efficient and individual rational outcome consistent with bilateral nash bargaining here we show that when instead the agreed payments cannot be renegotiated the outcome is also unique but it now coincides with the nucleolus of an associated bankruptcy problem we provide a strategic foundation for this outcome then we study how such renegotiation affects the principal s payoff according to the properties of the surplus function we find for example that renegotiation benefits the principal when agents are complements and it hurts him when they are substitutes situations with respectively increasing and decreasing marginal contributions

optimal allocation of ownership rights in dynamic r d alliances we explore the dynamic evolution of property rights regimes in r d alliances using the incomplete contract approach pioneered by grossman hart and moore in contrast to the standard analysis the productive asset is an excludable public good such as a patent moreover both firms can decide whether to disclose their know how and invest effort know how that has once been released cannot be concealed later we characterize different scenarios in which the optimal ownership structure may change over time due to a trade off between inducing know how disclosure and ensuring maximum effort

nature of transfers income tax function and empirical estimation of elasticity of taxable income for brazil abstractthis article aims to estimate the elasticity of taxable income eti taking into account the nature of transfers and their use as a redistribution package involving cash and in kind transfers to households in brazil our contributions are twofold first we provide a simple model with balanced budget government that reveals the role played by cash and in kind transfers on the labour supply and income tax revenues thereof next in order to estimate eti in the presence of cash and in kind transfers brazilian population surveys pesquisa nacional por amostra de domicilios pnad are used to explore a limited tax reform that was implemented between 1997 and 1998 this reform only affected the higher income tax bracket our findings suggest that in kind cash transfers are positively negatively associated with reported taxable income and precise estimation of eti requires estimates of both types of transfers last we estimate the eti for brazil in the range from 0 4 to 1 3 not different fro

reputation and the allocation of ownership we show that allocation of ownership matters even in a long term relationship where problems of opportunism are less severe unless agents are very patient ownership structure is chosen to give the agents best incentives to cooperate the optimal control structure of the static game restricts the gain from deviation to be the lowest but also the punishment will be minimal the worst ownership structure of the one shot game is good in the repeated setting because it provides the highest punishment but bad because the gain from deviation is also highest we show that when investment costs are very elastic partnership and a hostage type solution arise in equilibrium while when costs are moderately elastic the results of the one shot game apply

making room for smallholder cooperatives in tanzanian tea production can fairtrade do that the objective of this article is to examine the different ways that smallholders are brought into fairtrade certification schemes in the tanzanian tea industry we examine the different ownership relations of processing factories and the perceived benefits of these different arrangements we use descriptive qualitative analysis based on qualitative interviews and focus groups conducted between 2008 and 2010 to identify the significance between factory ownership organization and fairtrade certification we find that there is a movement toward innovation in the organizational strategies which includes new ownership arrangements of processing factories and outgrower contracts that have been associated with certified fairtrade production we also suggest that organizational innovation is significant for obtaining scheme success yet perceived benefits of and increased information about fairtrade production is independent from ownership shares in processing

non contractible investments and vertical integration in the mexican footwear industry abstract this paper examines patterns of integration among manufacturers and retailers using data from a survey of footwear manufacturers in mexico the property rights framework developed in papers by grossman and hart 1986 j polit econ 94 691 and hart and moore 1990 j polit econ 98 1119 is differentiated from the standard empirical transactions cost framework in the context of this industry the most relevant distinction between the two frameworks is that the property rights framework addresses both the benefits and costs of integration while the transactions cost framework focuses only on variation in the benefits of integration we show that the costs of integration are highest where the retailer s non contractible investment has an important effect on the overall profits from the relationship consistent with the property rights framework the data suggest that integration is less likely in these circumstances

information gathering transaction costs and the property rights approach the property rights approach to the theory of the firm suggests that ownership structures are chosen in order to provide ex ante investment incentives while bargaining is ex post efficient in contrast transaction cost economics emphasizes ex post inefficiencies in the present paper a party may invest and acquire private information about the default payoff that it can realize on its own inefficient rent seeking can overturn prominent implications of the property rights theory in particular ownership by party b may be optimal even though only the indispensable party a makes an investment decision

efficiency out of disorder contested ownership in incomplete contracts in many situations irreconcilable disagreements between players lead to costly ownership disputes over assets for example in case of joint ownership this article studies the role of such disputes in a situation where two players have to make a transaction specific investment and when contracts are incomplete i show that potentially contested ownership may mitigate the inefficiency of investments due to the incompleteness of contracts generating an exchange surplus that comes closer to the first best surplus as compared to any other ex ante distribution of ownership typically discussed in the literature following the influential work by grossman hart and moore if the contest is an all pay auction each player makes a transaction specific investment as if he or she owns the asset this article can explain why shared ownership as for example in equity joint ventures family firms start up partnerships and so on is an important part of today s corporate landscape

renegotiation design and contract solutions to the hold up problem abstract this paper surveys the literature on contractual solutions to the hold up problem which has addressed the issue of how to design the optimal contractual arrangement to achieve efficient investments in the presence of contract incompleteness although scholars have argued that renegotiation design is a necessary condition to avoid the hold up problem some recent papers have seriously questioned this condition we mainly show that renegotiation design remains a necessary condition to implement efficient investments

relational contracts and the theory of the firm relational contracts informal agreements sustained by the value of future relationships are prevalent within and between firms we develop repeated game models showing why and how relational contracts within firms vertical integration differ from those between nonintegration we show that integration affects the parties temptations to renege on a given relational contract and hence affects the best relational contract the parties can sustain in this sense the integration decision can be an instrument in the service of the parties relationship our approach also has implications for joint ventures alliances and networks and for the role of management within and between firms

collusion exclusion and inclusion in random order bargaining this paper examines the profitability of three types of integration in a cooperative game solved by a random order value e g the shapley value collusion between players i and j is a contract merging their resources in the hands of one of them say i this contract can be represented as a combination of exclusion which lets i exclude j s resource but not use it himself and inclusion which lets i use j s resource but not exclude j from it this representation yields a third difference condition on the characteristic function that determines the profitability of collusion generalizing existing results for specific games namely collusion is profitable unprofitable when the complementarity of the colluding players is reduced increased by other players

noncooperative bargaining hostages and optimal asset ownership this paper re examines the effect of asset ownership on investment decisions for a joint relationship in the absence of contracts on investment levels it obtains some results which contradict findings by sanford j grossman oliver d hart and john moore in particular it finds that the loss of ownership of an asset may increase the asset loser s investment incentive the difference between this paper and those authors papers stems from the different interpretations of the roles of the threat point and outside options in bargaining this paper also clarifies the role of relationship specific investments as a cause of integration copyright 1998 by american economic association

markets for ownership the prevailing economic theory of the firm based on a property rights perspective has demonstrated that ownership by dispensable outside parties is an inefficient outcome relative to ownership by productive agents in order to better understand observed patterns of ownership this paper considers the outcome of ma rkets for ownership that operate prior to production taking place the main result is that outside parties will often become the equilibrium asset owners this is precisely because but for ownership such parties would not earn rents in contrast productive agents earn rents even when they do not own assets given that their contribution is complementary with other productive agents their willingness to pay for ownership is less than that of an outside party this result is robust to the introduction of moderate levels of inefficiency arising from outside ownership and to a consideration of opportunities for re sale before production begins the main conclusion drawn is that the nature of the operation of markets for ownership stands alongside incentive effects as important predictors of firm boundaries journal of economic literature classification numbers d23 l22

out of space regulation and technical change in communications satellites regulatory practices by the federal communications commission fcc have the effect of rationing the use of a particular resource required for communications satellite technology the electromagnetic spectrum spectrum or the airwaves is the medium over which communications signals such as tv telephone and radar travel federal government allocation of spectrum among competing services has long been implemented to mitigate the interference that can arise between nearby signals hence for instance the assignment of radio stations to unique regions along the am and fm dials that government regulation can and probably does fail to allocate spectrum efficiently for all the usual economic reasons has been attested to criticized and in turn the subject of proposed reformation in an economics literature both historic radio spectrum regulation inspired coase s theorem and growing including work which dates from harvey levin 1971 and references cited therein to most recently stanley besen et al 1984 left unaddressed however have been the implications of inefficient spectrum regulation for the pace and direction of technical change specifically the problems of static resource misallocation may be compounded by inefficiency in induced innovation v kerry smith 1974 1975 koji okuguchi 1975 wesley magat 1976 if fcc allocations incorrectly signal the true economic scarcity of spectrum innovation to augment spectrum and other inputs on the basis of relative scarcity may be misdirected and the overall rate of r d spending may be distorted accordingly the effect of government regulation on innovation in communications satellite technology merits particular attention for several reasons first a recent fcc ruling will increase the cost of future satellites by requiring them to operate at fcc mandated minimum levels of intensity of spectrum use on top of rationed quantities of spectrum see federal register 1983 para 69 second unlike other uses of spectrum there is a large public sector component to satellite r d spending that is also likely to be affected by fcc regulation undertaken by nasa current research expenditures on advanced communications satellite technology have been justified in large part by a perceived need to develop methods that use spectrum more intensively see nasa 1984 and u s congress house 1984 third and again distinguishing satellites from other users of spectrum the inherently global nature of satellite technology renders satellite spectrum allocations a contentious international issue in particular developing countries not currently using satellite technology have expressed serious concern about future spectrum availability in response technical change economizing on spectrum is frequently endorsed by regulators and moral suasion is accordingly brought to bear on industry as an appropriate solution see fcc 1985 and u s congress 1982 1 this paper proceeds as follows section i tailors a model of induced innovation de

optimal ownership of public goods reconsidered consider a non governmental organization ngo that can invest in a public good should the government or the ngo own the public project in an incomplete contracting framework with split the difference bargaining besley and ghatak 2001 argue that the party who values the public good most should be the owner we demonstrate the robustness of their insight when the split the difference rule is replaced by the deal me out solution our finding is in contrast to the private good results of chiu 1998 and de meza and lockwood 1998 who show that the optimal ownership structure crucially depends on whether the split the difference rule or the deal me out solution is used

central governance or subsidiarity a property rights approach to federalism abstract we consider a model where one region in a federation can realize a public project after undertaking value increasing investments while negotiations on the federal level ensure that an efficient project size is implemented in equilibrium non contractibility of investments causes the overall outcome to differ across regimes if the region bears the entire implementation costs of its policies underinvestment prevails and subsidiarity centralized governance is superior when spillovers are weak strong conversely if linear cost sharing arrangements are feasible decentralized authority often admits a socially optimal outcome while centralized authority with majority or unanimity rule does not

government versus private ownership of public goods there has been a dramatic change in the division of responsibility between the state and the private sector for the delivery of public goods and services in recent years with an increasing trend toward contracting out to the private sector and public private partnerships this paper analyzes how ownership matters in public good provision we show that if contracts are incomplete then the ownership of a public good should lie with a party that values the beneets generated by it relatively more this is true regardless of whether this party is also the key investor or other aspects of the technology

asset ownership and contractibility of interaction in a property rights framework i study how organizational form and quantity contracts interact in generating investment incentives the model nests standard property rights and hold up models as special cases i admit general message dependent contracts but provide conditions under which noncontingent contracts are optimal first the article contributes to the foundation of the property rights theory i characterize under which circumstances its predictions are correct when trade is contractible second i study how the optimal use of the incentive instruments depends on the environment finally the model offers a new perspective on the classic fisher body case and produces implications that are empirically testable

power in a theory of the firm transactions take place in the firm rather than in the market because the firm offers power to agents who make specific investments past literature emphasizes the allocation of ownership as the primary mechanism by which the firm does this within the contractibility assumptions of this literature we identify a potentially superior mechanism the regulation of access to critical resources access can be better than ownership because i the power agents get from access is more contingent on their making the right investment and ii ownership has adverse effects on the incentive to specialize the theory explains the importance of internal organization and third party ownership

bargaining position bargaining power and the property rights approach in the property rights approach to the theory of the firm hart 1995 parties bargain about whether or not to collaborate after non contractible investments have been made most contributions apply the regular nash bargaining solution we explore the implications of using the generalized nash bargaining solution a prominent finding regarding the suboptimality of joint ownership turns out to be robust however in contrast to the standard property rights model it may well be optimal to give ownership to a party whose investments are less productive provided that this party s ex post bargaining power is relatively small

ex ante investment ex post adaptation and joint ownership abstract this study extends the property rights theory prt model by introducing an ex post adaptation to changes in trade circumstances we show that if uncertainty is sufficiently high joint ownership can facilitate both ex ante investment and ex post adaptation

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

the hold up problem in a repeated relationship abstract much of the literature on what determines the scope of operations of a producer has centered on the hold up problem the standard results indicate the hold up problem may lead to suboptimal investments and therefore integration may improve the organization of production in this paper we consider a repeated relationship with durable investments and show the possibility of integration improves the choice of investments and there is no integration in equilibrium the equilibrium contract is non exclusive in order to allow the buyer to choose integration in later periods we derive this result in the presence of very simple and incomplete contracts

excessive continuation and dynamic agency costs of debt abstract this paper analyses the incentives of the equityholders of a leveraged company to shut it down in a continuous time stochastic environment keeping the firm as an ongoing concern has an option value but equity and debt holders value it differently equityholders decisions exhibit excessive continuation and reduce firm s value using a compound exchange option approach we characterise the resulting agency costs of debt derive the price of these costs and analyse their dynamics we also show how agency costs can be reduced by the design of debt

contractual signaling relationship specific investment and exclusive agreements i analyze a model of hold up with asymmetric information at the contracting stage the asymmetry of information concerns the value of trade with external parties i show that contractual signaling and efficiency of investment can conflict if only quantity is contractible this conflict generates inefficient equilibria in terms of investment contracting on exclusivity in addition to quantity resolves the conflict and consequently eliminates the inefficiency of investment

revenue sharing and control rights in team production theories and evidence from joint ventures this paper presents a model of the joint venture that is grounded in the stylized facts we found from a sample of 200 joint venture contracts the model incorporates the revenue sharing contract into the incomplete contract frameworks of grossman hart moore property rights theory and the transaction cost theory of the firm and emphasizes the impact of expropriation joint control can be optimal as well as unilateral control our econometric analysis of the revenue sharing and control arrangements offers strong support to our property rights theory motivated model with self investment but rejects that with cooperative investment the transaction cost theory motivated model leaves some important empirical findings unexplained our findings also reject some of the existing theories of joint ownership

the outside option threat point and nash bargaining solution abstract one issue on whether in using the nash bargaining solution outside options should be treated as constraints or threat point payoffs is whether and for how long taking outside options will refrain players from reverting to bargaining

downstream mergers and producer s capacity choice why bake a larger pie when getting a smaller slice in this article the effect of downstream horizontal mergers on the upstream producer s capacity choice was studied contrary to conventional wisdom i find a nonmonotonic relationship horizontal mergers induce a higher upstream capacity if the cost of capacity is low and a lower upstream capacity if this cost is high this result is explained by decomposing the total effect into two competing effects a change in holdup and a change in bargaining erosion

asset specificity and vertical integration asset specificity is usually considered to be an argument for vertical integration the main idea is that specificity induces opportunistic behavior and that vertical integration reduces the cost of preventing opportunism in this paper i show that asset specificity can be an argument for non integration in a repeated game model of self enforcing relational contracts it is shown that when parties are non integrated increasing degrees of asset specificity make it possible to design relational contracts with higher powered incentives

a latent class approach to investigating demand for genetically modified banana in uganda this study explores consumer acceptance and valuation of a genetically modified gm staple food crop in a developing country prior to its commercialization we focus on the hypothetical introduction of a disease resistant gm banana variety in uganda where bananas are among the most important staple crops a choice experiment is used to investigate consumer preferences for various attributes related to the banana such as bunch size technology producer benefit and price and examine their opinions on gm foodstuff choice data come from 421 banana consuming households randomly selected from three regions of uganda a latent class model is used to investigate the heterogeneity in consumers preferences for selected attributes related to the banana and to profile consumers who are more or less likely to accept gm bananas our results reveal that there is significant heterogeneity in consumer preferences across our sample gm bananas are valued the most by poorer households located in the rural areas of the eastern region these food insecure households would experience the highest benefits i e welfare gains from the commercial release of gm bananas in contrast urban consumers are less accepting of gm bananas and they would experience significant welfare losses if gm banana is released according to our welfare estimates both the total welfare benefits acquired by the gainers and the total welfare losses borne by the losers of this technology are significant and large these results suggest the need for further investigation of the overall welfare effects of the introduction of gm bananas on the ugandan society as a whole

does asset ownership always motivate managers outside options and the property rights theory of the firm this paper studies the grossman hart moore ghm property rights approach to the theory of the firm under alternating offers bargaining when managers can pursue other occupations while negotiating over the division of the gains from cooperation the ghm results obtain if taking the best alternative job terminates bargaining outcomes are very different sometimes an agent with an important investment decision should not own the assets he works with sometimes independent assets should be owned together sometimes strictly complementary assets should be owned separately

on the relation between asset ownership and specific investments experimental results are presented for a simplified version of hart s 1995 theory of the firm theory predicts that investment levels remain constant when investors no trade pay offs increase if these pay offs are threat points while they may decrease when no trade pay offs are outside options our results support these predictions in a relative sense average investment levels exceed the predicted level actual investment behaviour is consistent with the outcomes of the bargaining stage the play of the game is supported by a reciprocity mechanism in which non investors consider higher investment levels as fair behaviour which deserves a reward investors anticipate this

nature of human capital technology and ownership of public goods abstract besley and ghatak 2001 show that a public good should be owned by the agent who values the public good the most irrespective of technological factors in this paper we relax their assumptions in a natural way by allowing the agents to be indispensable and we show that the relative valuations are not the sole determinant of an optimal ownership structure but also the nature of human capital and technology matter

the economics of child custody i develop a model of marriage in which spouses decide on investments in child quality during marriage and on the allocation of child custody should they divorce the custodial allocation determines the share of the marital surplus each spouse appropriates which in turn influences spouses investment incentives the custodial allocation therefore has both distributional and efficiency consequences i derive the equilibrium investments and optimal custodial allocation and identify three channels through which making divorce easier affects child welfare investments in child quality during marriage the likelihood of divorce and the allocation of custody if divorce occurs

inequality incomplete contracts and the size distribution of business firms this article analyzes the effects of intrafirm bargaining on the formation of firms in an economy with imperfect capital markets and contracting constraints in equilibrium wealth inequality induces a heterogeneous distribution of firm sizes allowing for firms both too small and too large in terms of technical efficiency the findings connect well to empirical facts such as the missing middle of firm size distributions in developing countries the model can encompass a nonmonotonic relationship between aggregate output and inequality it turns out that an inflow of capital may indeed decrease output in absolute terms

the boundaries of the firm revisited why do firms exist what is their function and what determines their scope these remain the central questions in the economics of organization they are also central questions for business executives and corporate strategists the worldwide volume of corporate mergers and acquisitions exceeded 1 6 trillion in 1997 it is hard to imagine that so much time effort and investment bankers fees would be spent on adjusting firm boundaries unless there was some underlying economic gain indeed the exceptional levels of merger and acquisition activity over the past two decades are a strong indication that economically significant forces do determine organizational boundaries the study of firm boundaries originated with the famous essay by coase 1937 who raised the question of why we observe so much economic activity inside formal organizations if as economists commonly argue markets are such powerful and effective mechanisms for allocating scarce resources coase s answer was in terms of the costs of transacting in a world of imperfect information when the transaction costs of market exchange are high it may be less costly to coordinate production through a formal organization than through a market in large part thanks to the work of williamson 1975 1985 recent decades have seen a resurgence of interest in coase s fundamental insight that firm boundaries can be explained by efficiency considerations our understanding of firm boundaries has been sharpened by identifying more precisely the nature and sources of transaction costs in different circumstances in the process the focus of

innovation market structure and the holdup problem investment incentives and coordination abstract i analyze the innovation incentives under monopoly and duopoly provision of horizontally differentiated products purchased via bilateral negotiations integrating the market structure and innovation literature with the holdup literature i show that competition can improve local incentives for non contractible investment because innovation levels are generally strategic substitutes however there can be multiple duopoly equilibria in some circumstances monopoly can provide a coordination device that can lead to greater expected welfare despite inferior local innovation incentives the conditions for this to be the case however are quite restrictive

the boundaries of firms as information barriers when contracts are incomplete the property rights theory of firms suggests that ownership of physical assets provides better outside options which in turn strengthen the owner s incentives to invest in the enterprise this approach is less suitable for human capital firms such as management consulting that lack physical assets this article develops an alternative theory for integration that sheds light on the boundaries of human capital firms in particular when a relationship between parties includes large potential externalities reducing the outside option of each party will be beneficial integration provides this reduction by blurring the contribution of individual parties within the firm and thus lowering their independent market valuation unlike some results in the property rights literature the results here are robust to variations in ex post bargaining solution

countervailing power and dynamic efficiency this paper studies the impact of buyer power on dynamic efficiency we consider a bargaining model in which buyer power arises endogenously from size and may impact on a supplier s incentives to invest in lower marginal cost we challenge the view frequently expressed in policy circles that the exercise of buyer power stifles suppliers incentives instead we find that the presence of larger buyers keeps a supplier more on his toes and induces him to improve the competitiveness of his offering in terms of both price and quality relative to buyers alternative options

government versus private ownership of public goods the role of bargaining frictions abstract the government and a non governmental organization ngo can invest in the provision of a public good who should be the owner of the public project in an incomplete contracting model in which ex post negotiations are without frictions the party that values the public good most should be the owner regardless of technological aspects however under the plausible assumption that there are bargaining frictions the optimal ownership structure depends on technological aspects and on the parties valuations we show that the differences between incomplete contracting models with public goods and private goods are thus smaller than has previously been thought

beyond asset ownership employment and assetless firms in the property rights theory of the firm abstract this paper enriches the celebrated grossman hart moore ghm property rights model with employment relationships by combining the ghm view of the firm as a bundle of asset ownerships with that of alchian and demsetz 1972 who viewed the firm as a nexus of contracts the model yields in some cases optimal asset ownership different from the implications of the ghm model we show that the nexus of contracts is a meaningful instrument to govern transactions even in the presence of asset ownership the optimal contractual network structure depends on the relationship specificity of investments unlike the ghm model where the asset ownership depends solely on the asset specificity of investments

exclusive contracts foster relationship specific investment exclusive contracts prohibit one or both parties from trading with anyone else contrary to earlier findings we show that investments that are specific to the contracting parties may be encouraged by exclusivity results depend on the nature of investments and the bargaining solution the major part of the analysis shows that exclusivity deals designed to assure the supply of essential inputs promote investment infinite penalties for breach even if ex post renegotiable may result in excessive investment in which case a positive but finite damage payment yields the first best outcome

investments in physical capital relationship specificity and the property rights approach abstract we reconsider the property rights approach to the theory of the firm based on incomplete contracts we explore the implications of different degrees of relationship specificity when there are two parties a and b who can make investments in physical capital instead of human capital if relationship specificity is exogenously given it turns out that joint asset ownership can be optimal only if the degree of relationship specificity is sufficiently small if relationship specificity can be freely chosen and if party a s investments are more productive then the parties deliberately choose a strictly positive level of relationship specificity and they always agree on sole ownership by party a

property rights productivity and the nature of noncontractible actions in a franchise system viewing ownership as bargaining power when some actions cannot be contracted upon we explore the role of property rights in franchising paying particular attention to complementary franchisor and franchisee noncontractibles and cases of franchisor scale economies then and regardless of ownership franchise system performance increases with the number of franchises and with productivity innovations performance also increases if the franchisor can visibly commit to actions limits on scale economies suggest that the franchise system may perform better when assets are franchisee owned the strategic environment is more complex when noncontractibles substitute then all parties may be immiserized by a productivity innovation

should we write prenuptial contracts abstract a successful marriage requires for both parties to make investments in their relationship and marital assets how such assets would be divided if and when the parties divorce is an important factor determining each party s ex ante investment incentives using the incomplete contracting approach we characterize the optimal asset division rule one that provides the parties with the best investment incentives we then discuss the circumstances under which the spouses would agree in equilibrium to contract out state imposed rules governing the allocation of marital assets upon divorce we conclude by exploring the implications of our results in the context of various asset division rules currently discussed by policy makers

tax rates government expenditures and labor supply clarifying the record a central claim of supply side economics is that in general equilibrium the income effect of a change in the income tax rate washes out and only the substitution effect remains in the words of ehrenberg and smith 1985 there would be a substitution effect with no overall income effect and labor supply would increase the aggregate supply of labor curve then must be upward sloping p 160 emphasis in the original although there has been a substantial literature on this subject the literature is sometimes confused in this paper a simple model is used to sort through the literature correct mistaken assertions derive a new result and collect earlier results in a compact way