Working paper

Joint Ownership of Production Projects as a Commitment Device against Interest Groups

Published on 21 October 2022
Authors : Nicoletta Berardi, Paul Seabright

Working Paper Series no. 889. This paper investigates an unexplored rationale for joint ownership of a production project. We model projects with autocorrelated productivity shocks as creating an option value of investing over time so that later investments benefit from the information revealed by the realization of earlier investments. However, internal and external interest groups may pressurize owners into paying out early revenues. Joint ownership provides a commitment mechanism against them, thereby enabling more efficient levels of investment. The Business Environment and Enterprises Performance survey data corroborate the model's prediction that organizations under interest group lobbying pressure are more likely to choose joint ownership.