Spin-offs of Entrepreneurial Firms : an O-Ring Approach The O-Ring theory provides a framework to analyse the emergence of firms organized as partnerships. The owner-managers of such entrepreneurial firms can benefit from ability matching within their production teams. However, they must also bear the project risk. Risk-aversion then induces a second-best solution. At the same time, integrated firms managed on behalf of risk-neutral residual-claimants face information and/or enforcement problems. Hence, they cannot organize ability-matched teams. It is shown that 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. The paper constitutes a significantly revised version of the study formerly entitled "The Emergence of a New Economy: An O-Ring Approach", Department of Economics, University of Konstanz, Discussion Paper Series I - 314
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. 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.
Find related papers by JEL classification: M2 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior D2 - Microeconomics - - Production and Organizations
Did you know? You can include your works in the database easily by uploading them on the Munich Personal RePEc Archive (MPRA) if you do not have access to an institutional RePEc archive.