Joint Ventures as a Commitment Device against Lobbies

This paper investigates an unexplored rationale for organizations to enter into joint ventures. After a review of the theoretical and empirical literature on joint ventures, it develops a model in which projects require investments over time under conditions of autocorrelated productivity shocks. Internal and external interest groups are likely to pressurize owners into paying out early revenues from such investments when the autocorrelation of productivity implies they should be reinvesting them in the project. Joint ventures provide a commitment mechanism enabling more efficient levels of investment. We present some evidence that this rationale for entering into joint ventures is especially relevant in the context of infrastructure projects in developing countries. Finally, we show that the Business Environment and Enterprises Performance survey data corroborate some of the theoretical predictions about the choice of joint venture as corporate governance structure. JEL classification: D23; F21; G32; L24; O12; O16.