CInSt Research Seminar "Endogenous Property Rights and the Nature of the Firm": Carmine Guerriero (University of Bologna)

Abstract
While focusing on residual rights, the property rights theory—i.e., PRT—of the firm overlooks the legal protection of each party’s input. We assume, instead, that the legislator selects the upstream firms’ property rights, which, in turn, determine their ex post bargaining power, by maximizing the possible adoption of the efficient fullinvestment profile and, conditionally on this goal being reached, minimizing less likely deviations to the inefficient intermediate-investment profile. Different from the PRT, each party’s ex ante incentives are exclusively determined by property rights, which are, in turn, entirely driven by the—absolute and relative to innovation costs—size of the default payoffs. When the latter are small and, thus, the gains from trade are large, any of the three possible market structures delivers the same incentives for full-investment. Then, the legislator’s goal becomes discouraging costly deviations by unbalancing the most the parties’ investment returns. To do so, she protects more the party with the smallest default payoff in such a way that the other one receives more often its preferred ownership structure. Opposite patterns arise when the investment returns are already unbalanced by one disagreement payoff being large and, thus, fostering full-investment is pivotal. When, finally, the gains from trade are tiny because both default payoffs are large, integration—i.e., either downstream or upstream ownership— cannot assure a positive payoff to both parties and the legislator implements the Nash bargaining solution, which, in turn, induces most often joint ownership. For every value of the innovation costs, each party’s property rights are weaker (stronger) the larger its (partner’s) default payoff is under its preferred ownership structure. These links remain true when one party dominates institutional design or has a stronger impact on the project value. In the last case, property rights do not generally favor the party shaping the most the relationship value. Our conclusions are consistent with the interplay among proxies for the legal protection of the downstream firms’ personal and intellectual property, firms’ presence in the value chain, process and capital specificity and R&D intensity for 119 countries over the 2006-2018 period

​Time: 18:10-19:30 (UTC+3).  
Location:  Online in Zoom
Working language: English.    
The link to join   Zoom:  https://zoom.us/j/7488279147
Here is the instruction about how to join the seminar in    Zoom: https://cinst.hse.ru/en/news/350230570.html

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