Spillovers, Investment Incentives and the Property Rights Theory of the Firm

Journal of Industrial Economics (Impact Factor: 1.04). 06/2004; 52(2):229-253. DOI: 10.1111/j.0022-1821.2004.00224.x
Source: RePEc


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. Copyright Blackwell Publishing Ltd. 2004.

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    • "It is also worth mentioning that different bargaining approaches within property rights theory deliver the same results in the context of our paper. De Meza and Lockwood (2004) analyze a case where there are spillovers: part of the value of investment remains in the asset even if the employee leaves. Then the basic GHM result that ownership motivates holds regardless of the type of bargaining model applied if spillovers are large enough. "
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