Diskussionsbeiträge: Serie II, Sonderforschungsbereich 178 "Internationalisierung der Wirtschaft", Universität Konstanz 183
International joint ventures (JV) are popular institutional forms chosen by the less developed countries (LDCs) to attract foreign Investments. In this paper we describe a set up where a multinational firm (MNF) decides on the volume of investment and the LDC gov-ernment offers a package specifying taxes and sharing rules by a JV contract. Such sharing rules can be designed to enhance the level of optimal investment under the presence of distortions and asymmetric information. We also provide an example where a JV contract might not work. In general, JV contracts lead to efficient outcomes.