Patrick W. Schmitz
Economics Letters, Vol. 119 (1), 2013, 28–31.
Abstract. In the property rights approach to the theory of the firm (Hart, 1995), parties bargain about whether or not to collaborate after non-contractible investments have been made. Most contributions apply the regular Nash bargaining solution. We explore the implications of using the generalized Nash bargaining solution. A prominent finding regarding the suboptimality of joint ownership turns out to be robust. However, in contrast to the standard property rights model, it may well be optimal to give ownership to a party whose investments are less productive, provided that this party`s ex-post bargaining power is relatively small.
The working paper version is available for download (CEPR Discussion Paper 9281).
The paper is available for download.