Abstract
We show that when designing a partnership agreement partner firms may prefer not to
specify how to allocate the commonly owned assets should there be an early
termination of the contract. By not including such a clause, firms induce litigation before a Court with positive probability. Firms create this ex-post inefficiency in order
to increase the levels of non-contractible investments, i.e.increase the ex-ante
efficiency. The absence of an asset allocation clause works as a "discipline device"
that mitigates the hold-up problem within the partnership. In our set-up, no other
contract but that without an asset allocation clause can credibly create an ex-post
inefficiency.
Lingua originale | English |
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pagine (da-a) | 718-732 |
Numero di pagine | 15 |
Rivista | European Economic Review |
Volume | 54 |
DOI | |
Stato di pubblicazione | Pubblicato - 2010 |
Keywords
- Contract
- Hold-up
- Joint venture