This paper offers a new explanation for the prevalent use of convertible securities in venture capital finance. Convertible securities can be used to endogenously allocate cash flow rights as a function of the realized quality of the project. This property can be used to mitigate the double...

This paper offers a new explanation for the prevalent use of convertible securities in venture capital finance. Convertible securities can be used to endogenously allocate cash flow rights as a function of the realized quality of the project. This property can be used to mitigate the double...

We report on several experiments on the optimal allocation of ownership rights. The experiments confirm the property rights approach by showing that the ownership structure affects relationship-specific investments and that subjects attain the most efficient ownership allocation despite starting...