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The Entrepreneur's Reward for Self-policing

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  • Barzel, Yoram
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    Abstract

    Collaboration among people is often subject to shirking; the net gain from collaboration depends on the contract governing it. The author argues that the entrepreneur assumes the role of residual claimant because his actions are more costly to monitor than those of the factors with which he collaborates. By offering fixed pay contracts to others and becoming residual claimant, the entrepreneur curtails his incentive to gain at his partners' expense, and the net gain from collaboration is then maximized. Costly monitoring applies to both labor and capital , and thus the entrepreneur may supply both. The entrepreneur's capital serves to guarantee the pay of the other factors. Copyright 1987 by Oxford University Press.

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    Bibliographic Info

    Article provided by Western Economic Association International in its journal Economic Inquiry.

    Volume (Year): 25 (1987)
    Issue (Month): 1 (January)
    Pages: 103-16

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    Handle: RePEc:oup:ecinqu:v:25:y:1987:i:1:p:103-16

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    Cited by:
    1. Tamara Todorova, 2012. "Optimal Work Effort and Monitoring Cost," Journal of Knowledge Management, Economics and Information Technology, ScientificPapers.org, vol. 2(6), pages 3, December.
    2. Richard N. Langlois & Nicolai J. Foss, 1997. "Capabilities and Governance the Rebirth of Production in the Theory of Economic Organization," DRUID Working Papers 97-2, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
    3. Horan, Stephen M. & Johnsen, D. Bruce, 2008. "Can third-party payments benefit the principal?: The case of soft dollar brokerage," International Review of Law and Economics, Elsevier, vol. 28(1), pages 56-77, March.
    4. Jain, Amit, 2011. "Connaissance, ressources, concurrence et les frontières de l'entreprise," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/6403 edited by Thiétart, Raymond-Alain.
    5. Kor, Yasemin Y. & Mahoney, Joseph T. & Michael, Steven C., 2005. "Resources, Capabilities and Entrepreneurial Perceptions," Working Papers 05-0120, University of Illinois at Urbana-Champaign, College of Business.
    6. Kim, Jongwook & Mahoney, Joseph T., 2008. "A Strategic Theory of the Firm as a Nexus of Incomplete Contracts: A Property Rights Approach," Working Papers 08-0108, University of Illinois at Urbana-Champaign, College of Business.
    7. Kirsten Foss & Nicolai J. Foss, 1999. "Understanding Ownership Residual Rights of Control and Appropriable Control Rights," DRUID Working Papers 99-4, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
    8. Kirsten Foss & Nicolai J. Foss, . "Assets, Attributes and Ownership," IVS/CBS Working Papers 00-3, Department of Industrial Economics and Strategy, Copenhagen Business School.
    9. Lovgren, Adam & Ross, R. Brent & Peterson, H. Christopher, 2012. "Overcoming Selection Bias in Measuring the Effect of Entrepreneurial Assistance Programs," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124815, Agricultural and Applied Economics Association.
    10. Alberto Battistini, 2008. "Micro-Founded Institutions and Macro-Founded Individuals: The Dual Nature of Profit," Department of Economics University of Siena 550, Department of Economics, University of Siena.
    11. Kirsten Foss & Nicolai J. Foss & Peter G. Klein, 2006. "Original and Derived Judgment An Entrepreneurial Theory of Economic Organization," DRUID Working Papers 06-09, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
    12. Nicolai J. Foss & Peter G. Klein, 2004. "Entrepreneurshoip and the Economic Theory of the Firm Any Gains from Trade?," DRUID Working Papers 04-12, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.

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