No one to hold
A want only becomes collectible when there is one name on each end of it. Sent to a we, it goes to an address where nobody lives, and years of asking can produce nothing without a single person ever having
Moore
Meaning
Property rights theory describes how the allocation of asset ownership can influence incentives for specific investments within a venture. This theoretical contribution, advanced by Grossman, Hart, and Moore, addresses situations where contracts are inherently incomplete, meaning not all future contingencies can be explicitly specified or enforced ex ante between parties. It posits that ownership of critical, non-human assets should primarily reside with the party whose investment is most specific to the venture and cannot be easily redeployed without significant loss of value, thereby protecting their ongoing incentive to contribute that unique value.
This framework helps account for how control over resources mitigates potential holdup problems and secures the ongoing commitment required to build a shared undertaking.
Investment Vulnerability
Specific investments are resources committed by a founder or partner that possess significantly lower value in any alternative use outside the current collaborative arrangement. These might include highly specialized knowledge unique to the project, custom-built tools, or the development of a unique operational process that is not transferable. The cost to the founder is a substantial exposure to opportunistic behavior; once such an investment is made, it becomes sunk, creating a dependency.
Without adequate protection, another party could then renegotiate terms, effectively appropriating part of the value created by the specific investment. This dynamic reduces the incentive to make valuable but non-redeployable commitments, undermining the potential for joint value creation.
Control Allocation
The theory proposes that assigning the residual rights of control, which constitute ownership, over key non-human assets to the party making the most specific investment is a fundamental mechanism for safeguarding that investment. This allocation empowers the owner to make decisions concerning the asset’s use in any situation not explicitly covered by a contract, providing a powerful shield against potential holdup by other parties who might otherwise try to extract concessions. For example, if a founder dedicates considerable energy to developing proprietary software that is useless outside their specific platform, their ownership of that software asset provides the ultimate say in its deployment, modification, or licensing in scenarios not detailed in a partnership agreement.
This prevents a partner from threatening to leave unless the founder accepts less favorable terms for its use. By holding these control rights, the specific investor is better positioned to secure returns from their unique contribution, thus maintaining their commitment and effort. This arrangement is not about rewarding past effort but about ensuring future productive contributions, as the owner’s continued willingness to work is tied to their ability to prevent the expropriation of their asset-specific returns.
The exercise of these rights can represent a significant load, requiring constant vigilance to protect the value of the specific investment from dilution or challenge.
Contractual Boundary
The applicability of Moore’s contribution is defined by the limits of explicit contracting, particularly pertinent in the early stages of a venture. New and complex undertakings inherently involve substantial uncertainty, making it impractical or even impossible to foresee and articulate every possible future contingency within a formal contract. This inherent incompleteness of contracts creates a boundary where formal written agreements alone are insufficient to guarantee the necessary specific investments from all partners.
In such scenarios, the structure of asset ownership becomes a crucial, complementary mechanism to explicit terms, ensuring that the motivations for sustained contributions are maintained despite the unpredictable nature of the work. It provides a means to manage the cost of unforeseen events where legal enforcement is either too costly or simply impossible. The absence of comprehensive contracting capacity elevates the importance of ownership as a governance tool.