Control Allocation, Revenue Sharing, and Joint Ownership

21 Pages Posted: 11 Jul 2005

See all articles by Susheng Wang

Susheng Wang

Hong Kong University of Science & Technology (HKUST) - Department of Economics

Tian Zhu

Hong Kong University of Science & Technology (HKUST) - Division of Social Science

Abstract

This article develops a two-period double moral hazard model with incomplete contracting to explore the implication of a possible adverse effect of unilateral control on the optimal revenue sharing and control allocation in a joint venture. We identify conditions under which joint ownership and control become optimal when unilateral control gives the controlling party opportunities to inefficiently extract private benefits at the expense of the joint revenue. Moreover, this adverse consequence of control may also lead to the separation of share ownership and control, i.e., it may be optimal for the minority owner to have the control rights.

Suggested Citation

Wang, Susheng and Zhu, Tian, Control Allocation, Revenue Sharing, and Joint Ownership. International Economic Review, Vol. 46, No. 3, pp. 895-915, August 2005, Available at SSRN: https://ssrn.com/abstract=758068

Susheng Wang (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Economics ( email )

Clear Water Bay
Hong Kong
China

Tian Zhu

Hong Kong University of Science & Technology (HKUST) - Division of Social Science ( email )

Division of Social Science
Clear Water Bay
Clear Water Bay, Kowloon
Hong Kong

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