The Costs and Benefits of Ownership¶
Grossman, S. J., & Hart, O. D. (1986). The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration. Journal of Political Economy, 94(4), 691-719.
Cited by¶
4 citations across 4 artifacts.
Each citation links to the sentence it supports in the citing article.
Primes¶
- Incomplete Contract
- Take the property-rights theory of the firm (the Grossman–Hart–Moore framework) as the rigorous instance, since it is where the prime received its sharpest formal treatment.
This sourceDefines ownership as residual control rights — the authority to decide whatever the contract left open — and derives that residual control should go to the party whose non-contractible investment matters most.
Supported in partVerified against the publisher's abstract
The abstract does ground the property-rights theory in residual control rights, but never names Moore nor calls it the prime's sharpest formal treatment.
“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.”
- Take the property-rights theory of the firm (the Grossman–Hart–Moore framework) as the rigorous instance, since it is where the prime received its sharpest formal treatment.
- Transaction Costs
- In contract theory, transaction costs motivate the study of incomplete contracts (
SupportedVerified against the publisher's abstract
Grossman and Hart advance a theory of costly contracts in which contractual rights are of two types, specific and residual: “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”, and ownership is the purchase of those residual rights. Costly specification leaving rights unallocated is the link the sentence draws between transaction costs and contractual incompleteness. The work does not use the phrase incomplete contracts, and it states its own theory rather than characterising what motivates the literature the sentence points to.
“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.”
- In contract theory, transaction costs motivate the study of incomplete contracts (
Domain-specific¶
- Hold-up Problem
- Grossman, Hart, and Moore (1986 onward) formalized this in a property-rights framework: when contracts are necessarily incomplete — unable to specify every future contingency — residual control rights determine who gets to threaten whom at renegotiation, which is why allocating ownership to the party whose investment is most exposure-sensitive raises total surplus.
This sourceThe incomplete-contracts theory of ownership as the purchase of residual control rights, assigning them to the party whose investment matters more, without the later Hart–Moore extension.
Supported in partVerified against the source
- Grossman, Hart, and Moore (1986 onward) formalized this in a property-rights framework: when contracts are necessarily incomplete — unable to specify every future contingency — residual control rights determine who gets to threaten whom at renegotiation, which is why allocating ownership to the party whose investment is most exposure-sensitive raises total surplus.
Mechanisms¶
- Partnership Operating Agreement
- An operating agreement is deliberately incomplete — no document can foresee every contingency, and the value lives in the residual control rights and the revision path, not in exhaustive clauses.
This sourceExplains that costly, incomplete contracts cannot specify every contingency and therefore allocate residual control rights over unspecified decisions.
- An operating agreement is deliberately incomplete — no document can foresee every contingency, and the value lives in the residual control rights and the revision path, not in exhaustive clauses.
Verification¶
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