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Spinoffs of Entrepreneurial Firms: An O-Ring Approach

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  • Oliver Fabel

Abstract

The O-ring theory is used to analyze the emergence of firms organized as partnerships. The owner-managers of such entrepreneurial firms benefit from ability matching within their production teams. However, they must bear the project risk. Risk aversion then induces a second-best solution. Integrated firms managed on behalf of risk-neutral residual claimants face information and/or enforcement problems. Hence, they cannot organize ability-matched teams. There exists an equilibrium such that groups of individuals sharing a superior ability level will found entrepreneurial firms. Low-quality individuals will be employed by managed firms, which hire randomly.

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Bibliographic Info

Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 160 (2004)
Issue (Month): 3 (September)
Pages: 416-

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200409)160:3_416:soefao_2.0.tx_2-b

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Cited by:
  1. Erik Lehmann, 2006. "Does Venture Capital Syndication Spur Employment Growth and Shareholder Value? Evidence from German IPO Data," Small Business Economics, Springer, vol. 26(5), pages 455-464, 06.
  2. Erik Lehmann & Thorsten Braun & Sebastian Krispin, 2012. "Entrepreneurial human capital, complementary assets, and takeover probability," The Journal of Technology Transfer, Springer, vol. 37(5), pages 589-608, October.
  3. Müller, Bettina, 2006. "Human capital and successful academic spin-off," ZEW Discussion Papers 06-81, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  4. von Siemens, Ferdinand A. & Kosfeld, Michael, 2014. "Team production in competitive labor markets with adverse selection," European Economic Review, Elsevier, vol. 68(C), pages 181-198.
  5. Egbert, Henrik & Neumann, Thomas & Rasmus, Anke, 2014. "Matchingtools und Matchingprozesse im Kontext von Junior und Senior Entrepreneuren
    [Matching Tools and Processes in the Context of Junior and Senior Entrepreneurship]
    ," MPRA Paper 54829, University Library of Munich, Germany.
  6. Braun, Thorsten V. & Lehmann, Erik E. & Schwerdtfeger, Manuel T., 2011. "The stock market evaluation of IPO-firm takeovers," UO Working Papers 01-11, University of Augsburg, Chair of Management and Organization.

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