Business Intelligence

Control Rights In Complex Partnerships

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Executive Summary

This paper develops a theory of the allocation of authority between two players who are in a "Complex" partnership, that is, a partnership which produces impure public goods. The authors show that the optimal allocation depends on technological factors, the parties' valuations of the goods produced, and the degree of impurity of these goods. When the degree of impurity is large, control rights should be given to the main investor, irrespective of preference considerations. There are some situations in which this allocation is optimal even if the degree of impurity is very low as long as one party's investment is more important than the other party's.

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