When Will Capitalists Meet their Match? The Property Rights Theory of the Firm With Endogenous Timing.

The standard property rights theory of the firm assumes asset ownership is decided by negotiation between managers prior to their choice of unverifiable investment. This paper endogenises the event sequence in a matching model of market equilibrium. Equilibria in which agents invest (in human capital) and buy assets prior to matching are shown to exist and so are immune to Maskin and Tirole's recent criticism that the simplest of ownership arrangements can be improved upon. The model preserves the central feature of the property rights theory, namely that ownership of physical assets affect the incentive to invest.