Host-country policy, transfer pricing and ownership distribution in international joint ventures: A theoretical analysis

This paper develops a simple model of an international joint venture in which the ownership shares are endogenously determined as the outcome of Nash bargaining between a multinational firm and a host firm. It shows how tax/subsidy policy by the host country's government and transfer pricing of inputs by the multinational firm may influence the equity distribution of the joint venture. Insofar as the optimal level of these policies is dependent on the primitives, the model generates empirical hypotheses regarding the impact of the primitives on the equity distribution.