Incentive Contracting and the Franchise Decision
AbstractWe examine theoretical predictions and econometric evidence concerning franchise contracting and sales-force compensation and suggest a number of factors that ought to influence the contracts that are written between principles and agents. For each factor, we construct the simplest theoretical model that is capable of capturing what we feel to be its essence. The comparative statics from the theoretical exercise are then used to organize our discussion of the empirical evidence, where the evidence is taken from published studies that have attempted to assess each factor's effect on the power of agent incentives. We also discuss theoretical issues and empirical results pertaining to a few topics that have been addressed in the literature but that do not fit easily into our simple modeling framework. A surprising finding of our survey of retail contracting under exclusive marks is the robust nature of the evidence: although researchers assess different industries over different time periods using a number of proxies for a given factor, their empirical findings are usually consistent with one another.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6544.
Date of creation: May 1998
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Find related papers by JEL classification:
- L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
- L8 - Industrial Organization - - Industry Studies: Services
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