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Universität zu Köln
Wirtschafts- und Sozialwissenschaftliche Fakultät

Staatswissenschaftliches Seminar - Prof. Schmitz

Transaction Costs and the Property Rights Approach to the Theory of the Firm

Daniel Müller and Patrick W. Schmitz

European Economic Review, Vol. 87, 2016, 92–107.

Abstract. The standard property rights approach is focused on ex ante investment incentives, while there are no transaction costs that might restrain ex post negotiations. We explore the implications of such transaction costs. Prominent conclusions of the property rights theory may be overturned: A party may have stronger investment incentives when a non-investing party is the owner, and joint ownership can be the uniquely optimal ownership structure. Intuitively, an ownership structure that is unattractive in the standard model may now be desirable, because it implies large gains from trade, such that the parties are more inclined to incur the transaction costs.

The working paper version is available for download (CEPR Discussion Paper 10207).

The paper is available for download.