Incomplete Contracts, Limited Liability, and the Optimality of Joint Ownership

MPRA Paper from University Library of Munich, Germany

Abstract: The property rights approach to the theory of the firm is the most prominent application of the incomplete contracting paradigm. A central conclusion of the standard model says that joint ownership is suboptimal. In this note, we analyze a modified version of the standard model that is tailored to the organization of R&D activities, where one of the parties is wealth-constrained and protected by limited liability. It turns out that joint ownership can be optimal, since it avoids wasteful rent-seeking activities when limited liability rents are necessary to induce high effort. Our results are in line with the fact that R&D activities are often conducted in research joint ventures.

Keywords: property rights; incomplete contracts; limited liability; rent seeking; joint ownership (search for similar items in EconPapers)
JEL-codes: D23 D86 L24 O32 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-com
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Incomplete contracts, limited liability, and the optimality of joint ownership (2019)
Working Paper: Incomplete Contracts, Limited Liability, and the Optimality of Joint Ownership (2019)
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