Termination and coordination in partnerships

Deborah Minehart, Zvika Neeman

Research output: Contribution to journalArticlepeer-review

Abstract

It is common practice for firms to pool their expertise by forming partnerships such as joint ventures and strategic alliances. A central organization problem in such partnerships is that managers may behave noncooperatively in order to advance the interests of their parent firms. We ask whether contracts can be designed so that managers will maximize total profits. We characterize first best contracts for a variety of environments and show that efficiency imposes some restrictions on the ownership shares. In addition, we evaluate the performance of two termination contracts that are widely used in practice: the shotgun rule and price competition. We find that although these contracts do not achieve full efficiency, they both perform well. We provide insight into when each rule is more efficient.

Original languageEnglish
Pages (from-to)191-221
Number of pages31
JournalJournal of Economics and Management Strategy
Volume8
Issue number2
DOIs
StatePublished - 1999
Externally publishedYes

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