Impressum |  Kontakt 
Siegel der Universität

Universität zu Köln
Wirtschafts- und Sozialwissenschaftliche Fakultät

Staatswissenschaftliches Seminar - Prof. Schmitz

Incomplete Contracts, Limited Liability, and the Optimality of Joint Ownership

Patrick W. Schmitz

Economics Letters, Vol. 183, 2019, 108558.

Abstract. The property rights approach to the theory of the firm is the most prominent application of the incomplete contracting paradigm. A central conclusion of the standard model says that joint ownership is suboptimal. We analyze a modified version of the standard model that is tailored to the organization of R&D activities, where one of the parties is wealth-constrained and protected by limited liability. It turns out that joint ownership can be optimal, since it avoids wasteful rent-seeking activities when limited liability rents are necessary to induce high effort. Our results are in line with the fact that R&D activities are often conducted in research joint ventures.

The working paper version is available for download (CEPR Discussion Paper 13881).