Design, Bargaining, and the Law
The goal of this book is to provide a clear set of analyses that demonstrate how joint ventures are founded upon a sort of “incentive system.” Each partner company (“player”) participates in a joint venture in order to maximize its own payoff. In order to do so, each player needs to incentivize its partners to provide capital to a joint project. This is a game-theoretic scenario. This book presents three important concepts relating to joint ventures: incentive bargaining;synergy (i.e., three kinds of payoff); and staged bargaining from each partner company’s point of view. A joint venture is a strategic alliance to which each partner company contributes not only a substantial amount of monetary capital but also relation-specific human capital. Each partner company participates in the management of the joint venture. Therefore, each player is both the principal and agent of the other, creating a double moral hazard problem that must be considered. Unless proactive measures are taken, a player may hesitate to provide its own capital, either monetary or human, because of the risk of the other acting opportunistically. Although there is potential for synergy, the joint venture is a risky project. This book takes a close look at each relevant stage involved in the incentive bargaining between the partner companies, indicating what the successful bargaining strategies are from each partner company’s point of view. This book is divided into four parts.