Advanced Search
MyIDEAS: Login to save this paper or follow this series

Separation of Ownership and Control: Delegation as a Commitment Device

Contents:

Author Info

  • Aristotelis Boukouras

    (Georg-August-University Göttingen)

Registered author(s):

    Abstract

    This paper provides a theoretical model for explaining the separation of ownership and control in firms. An entrepreneur hires a worker, whose eff ort is necessary for running a project. The worker\'s eff ort determines the probability that the project will be completed on time, but the worker receives some unobservable benefi t by continuing his employment in the project. Thus, motivating the worker requires an efficiency wage which is inflated by the private benefit. The entrepreneur would pay out a smaller wage if he could commit to terminate the project if a delay occurs, but this threat is not credible, because the project has positive continuation value. We show that hiring a manager can solve this time-inconsistency issue and reduce the efficiency wage. We extend the model to include managerial moral hazard and we examine the conditions under which separation of ownership and control is more likely to happen. The model is consistent with many of the findings of the empirical literature, while it generates some new predictions too.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www2.vwl.wiso.uni-goettingen.de/courant-papers/CRC-PEG_DP_79.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Courant Research Centre PEG in its series Courant Research Centre: Poverty, Equity and Growth - Discussion Papers with number 79.

    as in new window
    Length:
    Date of creation: 10 May 2011
    Date of revision:
    Handle: RePEc:got:gotcrc:079

    Contact details of provider:
    Postal: Platz der Goettinger Sieben 3; D-37073 Goettingen, GERMANY
    Phone: +49 551 39 14066
    Fax: + 49 551 39 14059
    Web page: http://www.uni-goettingen.de/en/82144.html

    Related research

    Keywords: control structure; delegation; efficiency wage; entrepreneur; managerial contract; moral hazard; organizational hierarchy; private bene fits; separation of owner-ship and control; time-inconsistency;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Faure-Grimaud, Antoine & Laffont, Jean-Jacques & Martimort, David, 2003. "Collusion, Delegation and Supervision with Soft Information," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 167, Institut d'Économie Industrielle (IDEI), Toulouse.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:got:gotcrc:079. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dominik Noe).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.