First-Purchase Rights: Rights of First Refusal and Rights of First Offer
This paper analyzes rights of first refusal and rights of first offer in a multiple-buyer, sequential bargaining setting. A right of first refusal entitles the right-holder to purchase a subject asset on the same terms as those accepted by a third party. A right of first offer requires a seller to first offer the right-holder to buy a subject asset and prohibits the seller from subsequently selling the asset to a third party on better terms than those offered to the right-holder. We examine when and how such rights yield benefits to, or impose costs, on the right-holder and the seller. We show that a right of first refusal transfers value from other buyers to the right-holder, but may also force the seller to make suboptimal offers. A right of first offer induces the seller to lower his first-period offer, which will tend to increase the net surplus to the seller and right-holder, but also forces the seller to make suboptimal subsequent offers. We find conditions under which it is in the ex ante interest of the seller and the right-holder to contract for a right of first refusal or a right of first offer, respectively. Copyright 2012, Oxford University Press.
Year of publication: |
2012
|
---|---|
Authors: | Kahan, Marcel ; Leshem, Shmuel ; Sundaram, Rangarajan K. |
Published in: |
American Law and Economics Review. - Oxford University Press. - Vol. 14.2012, 2, p. 331-371
|
Publisher: |
Oxford University Press |
Saved in:
Online Resource
Saved in favorites
Similar items by person
-
First-Purchase Rights : Rights of First Refusal and Rights of First Offer
Kahan, Marcel, (2013)
-
Sovereign Debt and Moral Hazard : The Role of Collective Action and Contractual Uncertainty
Kahan, Marcel, (2020)
-
Sovereign debt and moral hazard : the role of collective action and contractual uncertainty
Kahan, Marcel, (2022)
- More ...