We construct a sequential investment model to investigate individual firms’ strategic choices of organizational forms when outsourcing their intermediate products. Our results indicate that as a result of the encouragement effect of sequential complementary investments, sequential investment alleviates the underinvestment caused by the hold-up problem. Thereafter, we analyze the impact of sequential investment on the choice of ownership structure. We show that contrary to the result of the standard property rights theory, strictly complementary assets could be owned separately.
Sequential Investment, Hold-up, Underinvestment, Optimal Ownership Structure
ZHANG, Yi and Zhang, Juyuan.
Sequential Investment, Hold-up, and Ownership Structure. (2014). Research Collection School Of Economics.
Available at: http://ink.library.smu.edu.sg/soe_research/1480
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