Partnerships versus Corporations: Moral Hazard, Sorting, and Ownership Structure
AbstractTeam production takes advantage of technological complementarities but comes with the cost of free-ridership. When workers differ in skills, the choice of sorting pattern may be associated with a nontrivial trade-off between exploiting the technological complementarities and minimizing the cost of free-ridership. This paper demonstrates that whether such a trade-off arises depends (i) on how the power of incentives required for effort provision varies with workers' types, and (ii) on whether the workers are organized for production in partnerships or in corporations. These results have implications for how production is organized in different industries—in partnerships or in corporations.
CitationKaya, Ayca, and Galina Vereshchagina. 2014. "Partnerships versus Corporations: Moral Hazard, Sorting, and Ownership Structure." American Economic Review, 104 (1): 291-307. DOI: 10.1257/aer.104.1.291
- D21 Firm Behavior: Theory
- D82 Asymmetric and Private Information; Mechanism Design
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- M12 Personnel Management; Executives; Executive Compensation
- M54 Personnel Economics: Labor Management