We show that when designing a partnership agreement partner firms may prefer not to specify how to allocate the commonly owned assets should there be an early termination of the contract. By not including such a clause, firms induce litigation before a Court with positive probability. Firms create this ex-post inefficiency in order to increase the levels of non-contractible investments, i.e. increase the ex-ante efficiency. The absence of an asset allocation clause works as a ‘‘discipline device’’. that mitigates the hold-up problem within the partnership. In our set-up, no other contract but that without an asset allocation clause can credibly create an ex-post inefficiency.

Termination Clauses in Partnerships

NICOLO', ANTONIO;
2010

Abstract

We show that when designing a partnership agreement partner firms may prefer not to specify how to allocate the commonly owned assets should there be an early termination of the contract. By not including such a clause, firms induce litigation before a Court with positive probability. Firms create this ex-post inefficiency in order to increase the levels of non-contractible investments, i.e. increase the ex-ante efficiency. The absence of an asset allocation clause works as a ‘‘discipline device’’. that mitigates the hold-up problem within the partnership. In our set-up, no other contract but that without an asset allocation clause can credibly create an ex-post inefficiency.
File in questo prodotto:
Non ci sono file associati a questo prodotto.
Pubblicazioni consigliate

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11577/2426198
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 9
  • ???jsp.display-item.citation.isi??? 10
social impact