Reputation and the Allo cation of Ownership∗

We show that the allocation of ownership matters even in long-term relationships where problems of opportunism are less severe unless the agents are very patient. Ownership structure is chosen to give agents the best incentives to cooperate. The optimal ownership structure of the static game restricts the gain from deviation to be the lowest but also the punishment will be minimal. The worst ownership structure of the one-shot game is good in the repeated setting because it provides the highest punishment but bad because the gain from deviation is also the highest. We show that when investment is inelastic to surplus share joint ownership is optimal. While for elastic investment the results of the one-shot game apply. Allowing for renegotiation of ownership softens the punishment under joint ownership. Joint ownership is then optimal if the agents are indispensable enough to each other. JEL Classification Numbers: D23, L14, L22