Access, Veto, and Ownership in the Theory of the Firm

Ownership may not always be the best driver of investment incentives in an incomplete contract context. Instead, we argue that ownership contains two facets-access and veto-that can be used specifically, and sometimes independently, to foster investment. Whereas prior studies in the literature have reported the effect of these mechanisms separately on incentives and welfare, we cast them within a single framework. Access is closer to efficiency than ownership when assets are complements at the margin; veto is sometimes closer to efficiency when assets are substitutes at the margin. Access increases the incentives of the beneficiary agent, whereas veto increases the incentives of the constrained agent. By defining control over an asset as "access with no outside veto," we provide a rationale for the optimality of intriguing organizational structures, such as open access, hybrid organizations, outside ownership, joint ownership, partnerships, and employment contracts. (JEL C70, D23, G30, L20).