Contracting institutions and ownership structure in international joint ventures

This paper examines the role of contracting institutions on a multinational firm's optimal ownership strategy. We develop a model in which both a multinational firm and its local joint venture partner can ex post engage in costly rent-seeking actions to increase their ex ante agreed upon revenu...

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Bibliographic Details
Published in:Journal of development economics 2013-07, Vol.103, p.124-132
Main Authors: Van Assche, Ari, Schwartz, Galina A.
Format: Article
Language:English
Subjects:
Business ownership
Contract enforcement
Economic rent
Economic theory
Institutions
International
International joint venture
Joint ventures
Judicial favoritism
Multinational corporations
Multinational enterprises
Organizational structure
Ownership
Ownership structure
Planning methods
Studies
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Summary:This paper examines the role of contracting institutions on a multinational firm's optimal ownership strategy. We develop a model in which both a multinational firm and its local joint venture partner can ex post engage in costly rent-seeking actions to increase their ex ante agreed upon revenue share. We show that the host country's level of contract enforcement and level of judicial favoritism affect the parties' incentives to contribute to the international joint venture. The model allows us to identify testable hypotheses relating these institutional features with the performance and optimal ownership structure of international joint ventures.
ISSN:0304-3878
1872-6089
DOI:10.1016/j.jdeveco.2013.02.008