The Effect of Asset Ownership on Project Selection: Evidence from 1970’s Television

Abstract

Existing theoretical and empirical work on contracting highlights the efficiency gains possible from optimizing asset ownership when projects span firm boundaries. However, in settings where firms are able to choose among heterogenous projects, asset ownership can also determine which projects are selected for execution. Using a regulatory shock to the US broadcast television industry, this study finds restricting television network ownership over television shows altered the types of shows commissioned by the networks. This result extends prior theoretical and empirical work on contracting by showing asset ownership not only determines the efficiency of outcomes given a project, but also can change the relative attractiveness of different projects. The relationship between asset ownership and project selection is especially important in innovation contexts where project selection has a cumulative effect by changing the marginal returns to future projects; an industry’s contracting environment can therefore be a driver of the direction of innovation.