Bargaining, Revenue Sharing and Control Rights Allocation

Abstract

In a two-period, double moral hazard model with incomplete contracting, this paper explores the relationship between revenue sharing and control rights. Specifically, we endogenize the allocation of both the income rights and the control rights and show why the two are often bundled together in the context of a two-party joint venture. Moreover, we study how the use of different bargaining solutions for the ex post contract renegotiation game may affect the optimal allocation of income and control rights. Our results can be used to explain the commonly observed ownership structures of equity joint ventures.