Institutions and Multinational Ownership Strategy

This paper examines the impact of institutions on a multinational firm's ownership strategy. We develop an international joint venture (IJV) model in which a multinational firm and its local partner both can undertake costly ex post actions to increase their revenue share specified by the ex ante IJV contract. The model captures the eects of two institutional features on the optimal IJV ownership structure: contract enforceability and cronyism. We introduce the IJV model into an industry equilibrium framework to analyze the impact of in- stitutions on a multinational firm's choice between forming an IJV or setting up a wholly-owned subsidiary.