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
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