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)
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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).
Item Type: | MPRA Paper |
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Original Title: | Moral Hazard and the Property Rights Approach to the Theory of the Firm |
Language: | English |
Keywords: | incomplete contracts; ownership rights; investment incentives; relationship specificity; moral hazard |
Subjects: | D - Microeconomics > D2 - Production and Organizations > D23 - Organizational Behavior ; Transaction Costs ; Property Rights D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D86 - Economics of Contract: Theory |
Item ID: | 97912 |
Depositing User: | Patrick W. Schmitz |
Date Deposited: | 05 Jan 2020 05:25 |
Last Modified: | 05 Jan 2020 05:25 |
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URI: | https://mpra.ub.uni-muenchen.de/id/eprint/97912 |