We model the role various forms of nonrecourse secured debt play in efficiently redeploying assets whose value is state-specific. Ex ante, an entrepreneur and an asset redeployer make noncontractible state-specific investments in the primary and next-best uses of an asset, respectively. The redeployer provides a secured nonrecourse loan equal to the value of the asset in the critical state that separates the good and bad states. In the event of a bad state, this contract averts ex post bargaining over the asset's quasi-rents on redeployment and leaves the parties' ex ante investments undistorted.IT IS FAIRLY EASY TO F IND examples of assets that were intended for one use and later redeployed to an alternative use. 1950s-era gasoline filling stations are routinely converted into restaurants, convenience stores, and trendy coffee shops. With the decline in worldwide passenger travel during the late 1980s, many older Boeing 747 passenger aircraft were reconfigured for use as air freighters. And with the decline in downtown business occupancies in many American cities during the early 1990s, a large number of older office buildings have been found to make charming and inexpensive hotel conversions. In each of these cases, a substantial portion of the asset's capital cost was devoted specifically to serving its intended use and yet turned out to be worthless. That is, when put in place the assets were specific assets. Moreover, in each case the assets were effectively redeployed to an alternative use after failing in their intended use. This paper examines the role nonrecourse secured debt plays in ensuring the optimal allocation of ownership over specific assets. Early work by Williamson~1975! and Klein, Crawford, and Alchian~1978! on the role of economic organization in avoiding the threat of postcontractual opportunism
ABSTRACT. Severe depletion of many genetically distinct Pacific salmon populations has spawned a contentious debate over causation and the efficacy of proposed solutions. No doubt the precipitating factor was overharvesting of the commons beginning along the Northwest Coast around 1860. Yet, for millenia before that, a relatively dense population of Indian tribes managed salmon stocks that have since been characterized as "superabundant." This study investigates how they avoided a tragedy of the commons, where in recent history, commercial ocean fishers guided by scientifically informed regulators, have repeatedly failed. Unlike commercial fishers, the tribes enjoyed exclusive rights to terminal fisheries enforced through rigorous reciprocity relations. The available evidence is compelling that they actively husbanded their salmon stocks for sustained abundance.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.