Appropriable Quasi Rent Of Relationship Specific Investment And Its Regulation

Hold-up is the core content of incomplete contract and also the classic problem in the theory of firm. In the lay of economic life, so many industry and commerce negotiations like unite risk agree, relation between handlers and shareholders, takeover overspend on the protection of hold-up; In other lays, spite overtaking of state-owned business and illegal construction of houses with limited property rights are also reflections about this problem. What’s more, the economic multiplex development leads to emerge of varies of organization form, like franchise, network, epibody and so on. Thus, how to protect hold-up problem, finding the way to regulate it has so much importance. In view of this, this paper select the typical model——4Sfranchise contract for study. With repeatedly research, we got contract model, indicators and other data. Based on document research, following theoretical derivation——empirical test——draw a conclusion, using Eviews6.0discuss the following issues:the nature of franchise; normal allocation of quasi-rent; essential factors to overcome hold-up; and measures for its regulation. The main content of this paper arranged as follows:Chapter Ⅰ,Introduces the background, the purpose and necessity of this study; Describes the research objectives, builds the analytical framework of this article. Then introduces research ideas and research methods used in this study, final elaborate the innovation of the article.Chapter Ⅱ, As the base of this paper, we carding the regulative measures of different viewpoints. Beginning with the argument between vertical integration proposed by Klein and long-term contracts supported by Coase, and then state other specific methods emerging recently, which trend to solve the problem in various economic organizations, such as changing holding shares, guarantee mechanism, reference point contract and so on. We carding and comment on the above-mentioned views, and discuss the applicability and limiting condition for these views.ChapterⅢ, We analyze the nature of franchise and its quasi-rent. This chapter with chanter Ⅱ are the theoretical basis of the following research. Firstly, franchise is one of the intermediate organizations with both traits of market and firm, it appears to offset the shortage about opportunistic behavior in market and inefficient incentive in firm. Its essence is a kind of relationship specific contract; Secondly, make a analysis on the contract structure of franchise contract and the relationship-specific investment. In franchise, franchiser and franchisee both have to-make a lot of specific investment. For franchisee, it has to invest on asset specific and human specific investment. For franchiser, its investment was mostly on specific operational channel. Even more important, both sides also make mutual investment. This investment is to increase rights penetration mutually. It may lead to hold-up, but more than that, it is a protection for quasi-rent; Finally, we analyze the nature of quasi-rent in franchise. In the franchise contract, there are two way to get the rent. One is settle accounts in advance; the other is hold back afterwards. The former does not have the chance to be squeezed. Only the latter can be hold-up because it could not be forecasted and controlled. But, both sides do their best to reduce this part, and set up protection to the rest. On this occasion, the amount of approvable quasi-rent is so little to consider for both sides, and there is no problem in squeeze or not for them. So, in these relationship specific contracts such as franchise, squeeze is not the normality, while the consultation is the normal allocation. And this is the primary cause of franchise that can develop so fast and exist so long.ChapterIV,by means of theoretical analysis above all, we make a expansion built on Klein’s self-enforcement model. Make a further subdivision on which he calls the reputation capital. Add to the investment on specific channel, maintain of relationship and various of protective measures produced with the development of modern trade. We deduced the logical relationship between implied contract and quasi-rent, then got a proposition that implied contract can reduce the probability of hold-up.Chapter Ⅴ,Based on the theoretical analysis, we structure the transmission mechanism from flexible contract to quasi-rent. The flexible contract is making flexible and adjustable design on contract terms and protective measures. It changes the specific investment into alternative investment, thereby it can prevent hold-up as well as market risk. In essence, it reduces specific investment degree which can result in "lock in", defuse some of the risk by being squeezed. In this flexible design, both sides’residual net income will increase to realize the efficiency of the contract, and ensure the contract perform smoothly.ChapterⅥ,is case study. We contact the conclusion with the practical issue in auto4S store contract. Text the practical application of implied contract and flexible contract, connected with the development of franchise in our country by contract sample and information from talking with the interviewer. We find that both the two measures play a very important role in4S franchise. For example, their contracts contain the implied contract, like mutual investment intentionally, buy-out in one space, screening, and amount and location controlled, besides, the administration cost and the taking more consideration to their relationship could all increased the performance cost, and then, reducing the breach motives; For flexible contract, in4S contracts, franchiser allow franchisee having sideline rights with the degree from20%to40%. This sideline rights help franchisee turnover when they have bad management. It avoids hundred-percent lock-in because of hundred-percent stock from franchiser, so it could reduces the hinder which prevents contra flow.ChapterⅦ,is variable inspection. Investigate the practical application of implied contract and flexible contract by empirical study, to test whether the two measures could prevent hold-up. If it could be, then how goes it with the governance efforts.Using Logistic estimation in Eviews6.o,by450data, we got a conclusion that both implied contract and flexible contract can prevent hold-up occurs, under the horizontal comparison, flexible contract is more effective.ChapterⅧ, is the conclusion. Beyond that, we find out hold-up caused by opportunistic behavior is different from rent redistribution caused by changing conditions in the market. The latter also deserves a research, but subject to the data we get, this paper could not make a further study on it.