Citation

Discussion Paper Details

Please find the details for DP1645 in an easy to copy and paste format below:

Full Details | Bibliographic Reference

Full Details

Title: Sequential Investments and Options to Own

Author(s): Georg N�ldeke and Klaus M. Schmidt

Publication Date: May 1997

Keyword(s): Incomplete Contracts, Options and Convertible Securities and Property Rights

Programme Area(s): Industrial Organization

Abstract: This paper analyses the investment incentives given by contingent ownership structures that are prevalent in joint ventures. We consider a variation of the standard hold-up problem where two parties make relationship-specific investments sequentially in order to generate a joint surplus in the future. In many interesting cases, including investments in human and in physical capital, the following ownership structure implements first-best investments: one party owns the firm initially, while the other party has the option to buy the firm at a set price at a later date. This result is robust to the possibility of renegotiation and uncertainty.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1645

Bibliographic Reference

N�ldeke, G and Schmidt, K. 1997. 'Sequential Investments and Options to Own'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1645