A NEW CINDERELLA STORY: JOINT VENTURES AND THE PROPERTY RIGHTS THEORY OF THE FIRM

What is it about?

Joint ventures (JVs) are a common form of inter-firm collaboration and, not surprisingly, the object of a vast literature. Issues of control are central to the definition of JV, which naturally begs for an interpretation in the context of the property rights theory (PRT) of the firm. In a series of seminal papers, Grossman, Hart and Moore (GHM) offer a rigorous framework to predict the allocation of control rights. Notably, under the standard assumptions of GHM, JVs are suboptimal. However, JVs are not suboptimal in more general settings where a number of the original framework’s assumptions are relaxed. In the context of the PRT, we survey more than 20 contributions that address the optimality of JVs under contract incompleteness.

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