The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration

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The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration

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Title: The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration
Author: Grossman, Sanford J.; Hart, Oliver D.

Note: Order does not necessarily reflect citation order of authors.

Citation: Grossman, Sanford J., and Oliver D. Hart. 1986. The costs and benefits of ownership: A theory of vertical and lateral integration. Journal of Political Economy 94(4): 691-719.
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Abstract: Our theory of costly contracts emphasizes that contractual rights can be 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.
Published Version: doi:10.1086/261404
Terms of Use: This article is made available under the terms and conditions applicable to Other Posted Material, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#LAA
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:3450060

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  • FAS Scholarly Articles [6948]
    Peer reviewed scholarly articles from the Faculty of Arts and Sciences of Harvard University
 
 

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