Temporary Partnerships as an Information Transmission Mechanism

H. Peter Møllgaard, Per Baltzer Overgaard

Research output: Working paperResearch

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Abstract

Asymmetric information and fear of acquiring a 'lemon' may explain the paucity of foreign investment in emerging market economies. If investors are uncertain about the profitability of investments, intrinsically inefficient, temporary partnerships or joint ventures may serve as mechanisms through which information is transmitted. Temporary partnerships with joint investments by the domestic firm and the foreign investor, together with a buy-out option to the investor, can be used to separate good and bad investment prospects in equilibrium. However, non-revealing equilibria may exist. Implications for foreign direct investment are traced and briefly related to the experience of transition economies.
Original languageEnglish
Place of PublicationCopenhagen
PublisherDepartment of Economics. Copenhagen Business School
Number of pages25
Publication statusPublished - 1998
SeriesWorking Paper / Department of Economics. Copenhagen Business School
Number10-98
SeriesDiscussion Papers / Department of Economics. University of Copenhagen
Number98-13
ISSN1601-2461

Keywords

  • Investment
  • Complementary assets
  • Partnerships
  • Joint ventures and licensing
  • Costly signaling

Cite this

Møllgaard, H. P., & Overgaard, P. B. (1998). Temporary Partnerships as an Information Transmission Mechanism. Department of Economics. Copenhagen Business School. Working Paper / Department of Economics. Copenhagen Business School, No. 10-98, Discussion Papers / Department of Economics. University of Copenhagen, No. 98-13