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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- 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.
- Francine Lafontaine & Kathryn L. Shaw, 2001.
"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.
- Eric Maskin & Yingyi Qian & Chenggang Xu, 1997.
"Incentives, Information, and Organizational Form,"
97034, Stanford University, Department of Economics.
- 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.
- Wouter Dessein & Luis Garicano & Robert Gertner, 2010.
"Organizing for Synergies,"
American Economic Journal: Microeconomics,
American Economic Association, vol. 2(4), pages 77-114, November.
- Patrick Bolton & Mathias Dewatripont, 2005.
MIT Press Books,
The MIT Press,
edition 1, volume 1, number 0262025760, June.
- Lafontaine, F. & Slade, M., 1996.
"Retail Contracting: Theory and Practice,"
96b09, Universite Aix-Marseille III.
- 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.
- 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.
- 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.
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