Abstract
Our theory of costly contracts emphasizes the contractual rights can by of two types: specific rights and residual rights. When it is costly to list all specific rights over assets in the contract, it may be optimal to let one party purchase all residual rights. Ownership is the purchase of these residual rights. When residual rights are purchased by one party, they are lost by a second party, and this inevitably creates distortions. Firm 1 purchases firm 2 when firm 1's control increases the productivity of its management more than the loss of control decreases the productivity of firm 2's management.
Keywords
ResidualProductivityProperty rightsBusinessTheory of the firmControl (management)Industrial organizationMicroeconomicsLaw and economicsEconomics
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Publication Info
- Year
- 1986
- Type
- article
- Volume
- 94
- Issue
- 4
- Pages
- 691-719
- Citations
- 9337
- Access
- Closed
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Cite This
Sanford J. Grossman,
Oliver Hart
(1986).
The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration.
Journal of Political Economy
, 94
(4)
, 691-719.
https://doi.org/10.1086/261404
Identifiers
- DOI
- 10.1086/261404