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Asset ownership and investment incentives revisited

By David De Meza and Ben Lockwood

Abstract

Previous work on the property rights theory of the firm suggests that in the presence of outside options, asset ownership may demotivate managers. This paper shows that this conclusion relies on the assumption that a manager’s outside option only depends on her own investment. In many cases, an asset owner has the opportunity to continue with a project even if the team breaks up. The investments of non-owners may then be devalued, but are typically not wholly lost to the owner. This weakens the bargaining power of the non-owner. So, in the presence of cross effects, outside options do not necessarily overturn the property of the original Grossman-Hart-Moore model that an asset transfer may motivate the gainer and demotivate the loser

Topics: HF
Publisher: University of Warwick, Department of Economics
Year: 2000
OAI identifier: oai:wrap.warwick.ac.uk:1615

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Citations

  1. (1989). An outside option experiment”, doi
  2. (1986). and B.Lockwood(1998), “Does Asset Ownership Always Motivate Managers? Outside Options and The Property Rights Theory of the Firm”, doi
  3. (1982). In Search of Excellence” Harper Collins Sutton,J.(1986), “Non-cooperative bargaining theory: an introduction”,

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