International joint venture with double-sided moral hazard: payment arrangements and credit constraints

摘要

We analyse the formation of an international joint venture (IJV) between a multinational corporation (MNC) and a domestic firm with double-sided moral hazard. The MNC can imperfectly adapt a superior production technology, and the domestic firm can reduce set-up costs, for the IJV. We examine how set-up costs interact with borrowing constraints and different payment arrangements. Our findings include: (i) a better access to credits can make the domestic firm worse off, (ii) under credit constraints, a reduction in set-up costs has a smaller positive effect on both partners' profits, (iii) under moderate credit constraints, whereas either a better access to credits or a higher set-up costs increases the domestic firm's share of profits with ex ante payments, the effect can be the opposite with ex post payments, and (iv) profit-sharing always occurs with ex ante payments, with or without credit constraints, but not so with ex post payments.