Sequential Investments and Options to Own

Contingent ownership structures are prevalent in joint ventures. This paper o ers an explanation based on the investment incentives provided by such an arrangement. We consider a hold-up problem in which two parties make relationshipspeci c investments sequentially in order to generate a joint surplus in the future. In our model, the following ownership structure implements rst best investments: one party owns the rm initially, while the other party has the option to buy the rm at a set price at a later date. This result is robust to the possibility of renegotiation and uncertainty. JEL classification numbers: D23, G32, L22.