Shared Ownership versus Third-Party Ownership

Competitive advantage is based on a unique nexus of firm-specific investments that creates inimitable quasi-rents. Because of the impossibility of writing complete contracts, the distribution of the quasi-rents is vulnerable to opportunistic and inefficient behavior. This paper discusses two corporate governance models as institutional safeguards: shared ownership that assigns the rights of residual control to the firm-specific investors, and thirdparty ownership that assigns the rights of residual control to independent fiduciaries. Shared ownership entails higher costs of collective decision-making but lower agency costs than third-party ownership. The paper presents testable propositions, conditional on contextual factors, on which model is better able to incentivize firm-specific investments.