Weak Property Rights Research Articles

Weak Property Rights and Holdup in R&D

We study how the sequence of e nancing of RD local spillovers and strong product market competition increase the likelihood that research projects will get funding. (4) The equilibrium sequence of R&D e nance need not be e rstbest efe cient. (5) In equilibrium, and controlling for the strength of property rights, VCs e nance projects that are more proe table on average.

Markets, Institutions, and Forestry: The Consequences of Timber Trade Liberalization in Ecuador

Although barriers to international trade were removed during the 1990s, log prices remain inefficiently low in Ecuador. Oligopsonistic conditions, which prevailed in the forestry sector under protectionism, have not been relieved by increased competition. The problem is that new investment is discouraged by weak property rights, corruption, and dated legislation that hinders forest dwellers’ participation in the market economy. Unless and until institutional reform is undertaken to stimulate investment and competition, the prospects for Ecuador’s tropical forests, which are among the most biodiverse in the world, will continue to be bleak.

On Expropriation of Minority Shareholders: Evidence from East Asia

As many East Asian countries plunged into economic decline, the structure of concentrated ownership and associated corporate governance, along with weak corporate performance, have been blamed for the crisis. There is little empirical evidence, however, of the nature of ownership structures in East Asia and their relationship to corporate performance in the typical East Asian environment (where inefficient judicial systems, and weak property and shareholder rights are common). The authors examine evidence of the expropriation of minority shareholders for 2,658 corporations in nine East Asian countries in 1996. They distinguish control from cash-flow rights. They also distinguish between various types of ultimate owners, including family, state, widely held corporations, and widely held financial institutions. Higher cash-flow rights are associated with higher market values, consistent with Jensen and Meckling (1976). In contrast, deviations of control from cash-flow rights - through the use of dual-class shares, pyramiding, and cross-holdings - are associated with lower market values. This is especially true for corporations under family control and, in Japan, under the control of widely held financial institutions. They conclude that the risk of expropriation is the major principal-agent problem for large corporations, as suggested by La Porta and colleagues (1999). The degree to which certain ownership structures are associated with expropriation depends on country-specific circumstances. These may include the quality of banking systems, the legal and judicial protection of individual shareholders, and the degree of financial disclosures required.

New Ideas Need New Space

We develop a setting with weak intellectual property rights, where firms' boundaries, location and knowledge spillovers are endogenous. We have two main results. The first one is that, if communication costs increase with distance, entrepreneurs concerned about information leakage have a benefit from locating away from the industry center: distance is an obstacle to collusive trades between members andnon-members. The second result is that we identify a trade-off for the entrepreneur between owning a facility (controlling all its characteristics) and sharing a facility with a {\it non-member} (an agent not involved in production), therefore losing control over some of its characteristics. We focus on ``location as the relevant characteristic of the facility, but location can be used as a spatial metaphor for other relevant characteristics of the facility. For theentrepreneur, sharing the facility with non-members implies that the latter, as co-owners, know the location (even if they do not have access to it). Knowledge of the location for the co-owners facilitates collusion with employees, what increases leakage. The model yields a benefit for new plants from spatial dispersion (locating at the periphery of the industry), particularly so for new plants of new firms.We relate this result with recent empirical findings on the dynamics of industry location.

Property Rights, Finance and Entrepreneurship

Is investment constrained more by insecure property rights or by limited external finance; For five transition economies in Eastern Europe and the former Soviet Union we find that weak property rights limit the reinvestment of profits in startup manufacturing firms. Access to credit does not appear to explain differences in investment. At least in the early stages of post-communist reform, retained earnings appear to have been enough to finance the investments that managers wanted to make.

Intellectual Property Rights, Input Markets, and the Value of Intangible Assets

Intellectual property rights (IPRs) appear to play an important role in facilitating production and exchange in certain input markets. This paper provides a simple theory about the relationship between stronger IPRs and contract-based production under assumptions of incomplete contracting. Employing some features of Grossman and Hart, Hart and Moore, and Hart (1995) (“GHM”), it is shown that property rights over intangible assets create incentives for independent supplier firms to produce research and development (R&D)intensive inputs for use by downstream producers of a final product. Legal rights over intellectual property allow these important assets to be “owned,” in the GHM sense of providing residual rights exercisable in the event of incomplete contractibility. Weak or nonexistent property rights create severe misappropriation risks for firms with intangible assets who must adapt them to make a specialized input. Once property rights are created or strengthened, it is feasible in some cases for an input maker to constitute itself as an independent firm, rather than as an integrated unit inside a larger firm. Asset ownership can then be allocated per standard GHM theory to provide proper incentives to make investments specific to the supplier-manufacturer relationship. In this way, IPRs are seen to contribute to an increase in the value of underlying assets, and hence ultimately to firm specialization and even industry structure. The theory of this paper accounts for recent empirical evidence linking stronger IPRs to a greater incidence of licensing activity. It also contributes to the ongoing modification of the economic theory of property rights associated with the early work of Harold Demsetz (1967).

The Information Content of Stock Markets: Why Do Emerging Markets Have Synchronous Stock Price Movements?

Stock prices move together more in low-income economies than in high-income economies. This finding is clearly not due to market size differences, and is only partially explained by slightly higher fundamentals correlation in low-income economies. However, measures of a country?s institutionalized respect for property rights do appear to explain these differences. We conjecture that weak private property rights impede informed trading and increase systematic noise trader risk. We also conjecture that, in countries that protect public investors poorly from corporate insiders, intercorporate income shifting may make firm-specific information less useful to risk arbitrageurs and therefore impede its capitalization into stock prices. Although our tests support these conjectures to some extent, we invite other explanations of our main finding.

Administrative Creation of Property Rights to Radio Spectrum

Despite the 1934 Communication Act's ban on private ownership of radio spectrum, the law leaves open to the Federal Communications Commission a range of licensing regimes under which the Commission may, in its discretion, grant spectrum users relatively strong or weak property rights to allotted frequencies. This article examines numerous administrative decisions by the FCC to demonstrate how regulatory changes have affected the property interests conferred by spectrum licenses, focusing on licensees' rights to use, divide, and broker spectrum flexibly and to prevent unauthorized reception of their signals. The article discusses the economic and legal significance of those changes and identifies areas for further reform. The authors conclude that, although important changes remain to be made, the FCC has strengthened property interests on both the transmission and receiving ends of licensed frequencies and, through the administrative process, has eroded the importance of the statutory distinction between private ownership and public licensing.

Basque versus Illyrian labor-managed firms: The problem of property rights

The property-rights structure of the “Basque” firm, directly derived from Mondragon industrial cooperatives, is discussed in this paper which focuses on two prominent characteristics: the “capital accounts” and the collective reserve fund. It is shown that the Basque firm, although it does not allow membership rights to be traded, is in a better position than the Illyrian firm to cope with problems of weak property rights, in particular the lack of personal commitment and incorrect incentives for both the admission of new members and investment.

The Evolution of Property Rights: A Study of the American West

The Evolution of Property Rights: A Study of the American West