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- Title
A RENT EXTRACTION THEORY OF RIGHT OF FIRST REFUSAL.
- Authors
CHOI, ALBERT H.
- Abstract
When a seller encumbers a property with a right of first refusal, whenever a third party offers to purchase the property, the right-holder can acquire the property by simply matching the third party's offer. I model the right as a modified auction where the right-holder gets to observe the third party's bid before making his own. I show that, compared to the standard auctions, the right increases the joint profit of the seller and the right-holder by reducing the third party's profit. This result is independent of whether the third party is aware of the right's existence and whether the right creates a welfare loss.
- Subjects
RENT; COST of living; PAYMENT; RIGHT of first refusal; OFFER &; acceptance (Contracts); CONTRACTS
- Publication
Journal of Industrial Economics, 2009, Vol 57, Issue 2, p252
- ISSN
0022-1821
- Publication type
Article
- DOI
10.1111/j.1467-6451.2009.00377.x