- Author
- Year
- 1992
- Title
- Cross-ownership as a hostage exchange to support collaboration
- Journal
- Managerial and Decision Economics
- Volume | Issue number
- 13 | 1
- Pages (from-to)
- 45-54
- Document type
- Article
- Faculty
- Faculty of Economics and Business (FEB)
- Institute
- Amsterdam Business School Research Institute (ABS-RI)
- Abstract
-
The impossibility of writing complete contracts causes loss of profitable transactions among firms, since their managers cannot ex ante bind themselves to future actions. The author shows how a reallocation of ownership rights into a network of mutual shareholdings among a coalition of firms produces an efficient enforcement mechanism. Cooperation is achieved by exchanging control rights until a mutual threat of capture of control is established. By making control over their firms vulnerable to a takeover by the other members of the coalition, each firm is able to make a credible commitment to future efficient actions. In equilibrium no punishment is administered, so that the arrangement achieves the outcome under complete contracts. More generally, it is proved that a mutual hostage exchange may dominate the threat of loss of reputation as an enforcement mechanism.
- Language
- Undefined/Unknown
- Permalink
- http://hdl.handle.net/11245/1.419385
Disclaimer/Complaints regulations
If you believe that digital publication of certain material infringes any of your rights or (privacy) interests, please let the Library know, stating your reasons. In case of a legitimate complaint, the Library will make the material inaccessible and/or remove it from the website. Please Ask the Library, or send a letter to: Library of the University of Amsterdam, Secretariat, Singel 425, 1012 WP Amsterdam, The Netherlands. You will be contacted as soon as possible.