Logo
Munich Personal RePEc Archive

Moral Hazard and the Property Rights Approach to the Theory of the Firm

Schmitz, Patrick W. (2020): Moral Hazard and the Property Rights Approach to the Theory of the Firm. Published in: Economics Letters , Vol. 186, No. Article 108514 (2020)

[thumbnail of MPRA_paper_97912.pdf]
Preview
PDF
MPRA_paper_97912.pdf

Download (116kB) | Preview

Abstract

In the Grossman-Hart-Moore property rights theory, there are no frictions ex post (i.e., after non-contractible investments have been sunk). In contrast, in transaction cost economics ex-post frictions play a central role. In this note, we bring the property rights theory closer to transaction cost economics by allowing for ex-post moral hazard. As a consequence, central conclusions of the Grossman-Hart-Moore theory may be overturned. In particular, even though only party A has to make an investment decision, B-ownership can yield higher investment incentives. Moreover, ownership matters even when investments are fully relationship-specific (i.e., when they have no impact on the parties' disagreement payoffs).

Atom RSS 1.0 RSS 2.0

Contact us: mpra@ub.uni-muenchen.de

This repository has been built using EPrints software.

MPRA is a RePEc service hosted by Logo of the University Library LMU Munich.