Information Gathering, Transaction Costs, and the Property Rights Approach

2006 ◽  
Vol 96 (1) ◽  
pp. 422-434 ◽  
Author(s):  
Patrick W Schmitz
Keyword(s):  
Property Rights ◽  
Private Information ◽  
Transaction Cost Economics ◽  
Investment Decision ◽  
Theory Of The Firm ◽  
Rent Seeking ◽  
Information Gathering ◽  
Investment Incentives ◽  
Ownership Structures ◽  
Ex Post

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.

scholarly journals The Boundaries of the Firm Revisited

1998 ◽  
Vol 12 (4) ◽  
pp. 73-94 ◽  
Author(s):  
Bengt Holmström ◽  
John Roberts
Keyword(s):  
Property Rights ◽  
Transaction Cost ◽  
Transaction Cost Economics ◽  
Firm Boundaries ◽  
Investment Incentives ◽  
Asset Ownership ◽  
Boundaries Of The Firm ◽  
Ex Post ◽  
Satisfactory Account ◽  
Rights Theories

Both transaction cost-economics and property-rights theories offer explanations of the boundaries of the firm based on ideas of ex post bargaining and holdup. These theories are quite distinct in their empirical predictions, but neither offers a satisfactory account of a large variety of observed practices. The authors discuss a number of such examples, where the boundaries of the firm seem to be determined by factors other than the need to protect investments, and where other mechanisms than the allocation of asset ownership are used to provide investment incentives. These examples indicate the need to enrich their theory of firm boundaries.

Incentive for innovation and the optimal allocation of patents

2017 ◽  
Vol 42 (4) ◽  
pp. 692-707 ◽  
Author(s):  
Kojun Hamada
Keyword(s):  
Property Rights ◽  
Ownership Structure ◽  
Optimal Allocation ◽  
Ownership Structures ◽  
Specific Investment ◽  
Specific Investments ◽  
Ex Post ◽  
Ex Ante ◽  
Joint Ownership

This article theoretically investigates how different ownership structures of patents affect ex ante and ex post incentives for innovation by applying a property rights approach. We explore a model in which two research laboratories invest in R&D to obtain an innovative patent, and after successfully obtaining the patent they determine an ownership structure for the patent. The two parties consider how the determined patent ownership would affect their noncontractible relation-specific investments for commercialisation. We demonstrate that joint ownership of a patent between two parties is optimal. More concretely, if a selfish (altruistic) relation-specific investment is more important than an altruistic (selfish) investment, a joint ownership with no (bilateral) veto is optimal to maximise the joint value. Moreover, when both parties do not commit themselves to joint ownership in advance, they have greater incentive to invest in R&D than committing, even if they understand that joint ownership is desirable ex post.

The Role of Accounting Information in Optimal Debt Contracts with Informed Lenders

2018 ◽  
Vol 94 (6) ◽  
pp. 165-200 ◽  
Author(s):  
Masako N. Darrough ◽  
Mingcherng Deng
Keyword(s):  
Private Information ◽  
Investment Decision ◽  
Accounting Information ◽  
Investment Efficiency ◽  
Debt Contracts ◽  
Debt Contracting ◽  
Lending Relationships ◽  
Debt Contract ◽  
Ex Post

ABSTRACT We analyze the role of accounting information in debt contracting when the lender has private information that can assist in the borrower's investment decision. The lender might have acquired private information during the due diligence process or via past lending relationships. We show that the borrower has a stronger incentive to engage in a suboptimal investment decision (i.e., asset substitution) ex post when the lender lacks incentive to truthfully reveal this information. We identify conditions under which, ex ante, the borrower can incorporate accounting signals in the debt contract to mitigate the effect of the lender's private information and improve the borrower's investment efficiency. Our analysis offers an alternative explanation for the use of performance pricing in debt contracts. JEL Classifications: G21; G32; M41; M48.

Institutional Theory of Endless Redistribution

2005 ◽  
pp. 4-18 ◽  
Author(s):  
K. Sonin
Keyword(s):  
Property Rights ◽  
Institutional Theory ◽  
Growth Rates ◽  
Rent Seeking ◽  
Economic Institutions ◽  
Wide Spread ◽  
Grass Roots ◽  
Protection Systems ◽  
Private Protection ◽  
The Rich

In unequal societies, the rich may benefit from shaping economic institutions in their favor. This paper analyzes the dynamics of institutional subversion by focusing on public protection of property rights. If this institution functions imperfectly, agents have incentives to invest in private protection of property rights. The ability to maintain private protection systems makes the rich natural opponents of public protection of property rights and precludes grass-roots demand to drive the development of the market-friendly institution. The economy becomes stuck in a bad equilibrium with low growth rates, high inequality of income, and wide-spread rent-seeking. The Russian oligarchs of the 1990s, who controlled large stakes of newly privatized property, provide motivation for this paper.

Ronald Coase and the Difference between Markets and Firms

2018 ◽  
Author(s):  
Abraham A. Singer
Keyword(s):  
Transaction Cost ◽  
Economic Activity ◽  
Transaction Cost Economics ◽  
Theory Of The Firm ◽  
Tabular Form ◽  
Specific Investment ◽  
The Difference ◽  
Marginal Revolution ◽  
The Way

This chapter reviews the development of transaction cost economics and unpacks its theory of the firm. The chapter begins with the marginal revolution in economics and how it altered the way economists understood the corporation. It then reviews the work of Ronald Coase and Oliver Williamson, explaining how they provided a novel account of firms. Transaction cost economics emphasizes how firms use hierarchy and bureaucracy to overcome problems of opportunism and asset-specific investment to coordinate some types of economic activity more efficiently than markets can. The transaction cost account of the corporation’s productivity component is shown in tabular form in comparison with its historical forerunners reviewed in the previous chapter.

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