This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. Journals
  3. American Economic Review
  4. March 2006
  5. Information Gathering, Transaction Costs, and the Property Rights Approach

Information Gathering, Transaction Costs, and the Property Rights Approach

  • Patrick W. Schmitz
American Economic Review
vol. 96, no. 1, March 2006
(pp. 422-434)
Download Full Text PDF

Abstract

The property rights approach to the theory of the firm suggests that ownership structures are chosen in order to provide ex ante investment incentives, while bargaining is ex post efficient. In contrast, transaction cost economics emphasizes ex post inefficiencies. In the present paper, a party may invest and acquire private information about the default payoff that it can realize on its own. Inefficient rent seeking can overturn prominent implications of the property rights theory. In particular, ownership by party B may be optimal, even though only the indispensable party A makes an investment decision.

Citation

Schmitz, Patrick, W. 2006. "Information Gathering, Transaction Costs, and the Property Rights Approach." American Economic Review, 96 (1): 422-434. DOI: 10.1257/000282806776157722

JEL Classification

  • D23 Organizational Behavior; Transaction Costs; Property Rights
  • D21 Firm Behavior: Theory