Spinoffs of Entrepreneurial Firms: An O-Ring Approach
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.
Volume (Year): 160 (2004)
Issue (Month): 3 (September)
|Contact details of provider:|| Web page: https://www.mohr.de/jite|
|Order Information:|| Postal: Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany|
When requesting a correction, please mention this item's handle: RePEc:mhr:jinste:urn:sici:0932-4569(200409)160:3_416:soefao_2.0.tx_2-b. 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: (Thomas Wolpert)
If references are entirely missing, you can add them using this form.