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Entrepreneurship and the Division of Ownership in New Ventures

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  • Dominique Demougin
  • Oliver Fabel

Abstract

The current study investigates a tripartite incentive contract between an innovator supplying an intellectual asset, a professional assigned to productive tasks, and a consulting firm specializing in matching ideas and professional skills. A rather simple pure tripartite partnership implements the consultant's expected profit maximum and maximizes the project's expected surplus. The liquidity‐constrained professional is compensated by receiving a share of one half in the new venture. The consultant's and the innovator's shares reflect the relative value of search. However, the consultant's optimal search effort to find an appropriate production partner is inefficiently low.

Suggested Citation

  • Dominique Demougin & Oliver Fabel, 2007. "Entrepreneurship and the Division of Ownership in New Ventures," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(1), pages 111-128, March.
    • Handle: RePEc:bla:jemstr:v:16:y:2007:i:1:p:111-128
    DOI: 10.1111/j.1530-9134.2006.00134.x
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    Cited by:

    1. InÉs Macho‐Stadler & David Pérez‐Castrillo & Reinhilde Veugelers, 2008. "Designing Contracts for University Spin‐offs," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(1), pages 185-218, March.
    2. Alessandro Fedele & Andrea Mantovani, 2010. "The Importance of Being Consulted," Annals of Economics and Finance, Society for AEF, vol. 11(2), pages 231-245, November.

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