Ownership, Control, and Incentive
The paper shows that the principal can enhance her control over the agent's human capital by acquiring the physical capital that is critical for him to create value. However, the enhancement in the control necessarily reduces his incentive to make human capital investment ex ante and to exert e�ort ex post. This trade-off between control and incentive thus decides the boundary of the firm. The paper also presents a rationale for M-form firms: centralized ownership of physical capital to facilitate coordination, and dispersed payoff rights to incentivize divisions.
|Date of creation:||03 Nov 2009|
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References listed on IDEAS
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- Lafontaine, F. & Slade, M., 1996.
"Retail Contracting: Theory and Practice,"
96b09, Universite Aix-Marseille III.
- Eric Van den Steen, 2010. "Interpersonal Authority in a Theory of the Firm," American Economic Review, American Economic Association, vol. 100(1), pages 466-90, March.
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"Targeting Managerial Control: Evidence from Franchising,"
NBER Working Papers
8416, National Bureau of Economic Research, Inc.
- Francine Lafontaine & Kathryn L. Shaw, 2005. "Targeting Managerial Control: Evidence from Franchising," RAND Journal of Economics, The RAND Corporation, vol. 36(1), pages 131-150, Spring.
- Casadesus-Masanell, Ramon & Spulber, Daniel F, 2000. "The Fable of Fisher Body," Journal of Law and Economics, University of Chicago Press, vol. 43(1), pages 67-104, April.
- Dessein, Wouter & Garicano, Luis & Gertner, Robert, 2007.
"Organizing for Synergies,"
CEPR Discussion Papers
6019, C.E.P.R. Discussion Papers.
- Mathias Dewatripont & Patrick Bolton, 2005.
ULB Institutional Repository
2013/9543, ULB -- Universite Libre de Bruxelles.
- Eric Maskin & Yingyi Qian & Chenggang Xu, 2000. "Incentives, Information, and Organizational Form," Review of Economic Studies, Oxford University Press, vol. 67(2), pages 359-378.
- Susan Athey & John Roberts, 2001. "Organizational Design: Decision Rights and Incentive Contracts," American Economic Review, American Economic Association, vol. 91(2), pages 200-205, May.
- Francine Lafontaine, 1995. "Pricing Decisions in Franchised Chains: A Look at the Restaurant and Fast-Food Industry," NBER Working Papers 5247, National Bureau of Economic Research, Inc.
- Yingyi Qian & Gerard Roland & Chenggang Xu, 2006. "Coordination and Experimentation in M-Form and U-Form Organizations," Journal of Political Economy, University of Chicago Press, vol. 114(2), pages 366-402, April.
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