Abstract Firm's investment is assumed to be ex ante but transaction is ex post contractible. Lack of control of transaction affects firm's investment activity. This paper analyzes three cases: (1) when firms make decision non-cooperatively, the inefficiency arises and ex ante investments are lower; (2) when the sailor (buyer) has transaction decision power, then the power owner makes over investment and the other is under investment. So the power should be attributed to the firm whose investment is more important.
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Received: 07 November 2006
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