Motivating Wealth-Constrained Actors
- (pp. 944-960)
AbstractWe examine how owners of productive resources (e.g. public enterprises or financial capital) optimally allocate their resources among wealth-constrained operators of unknown ability. Optimal allocations exhibit: (1) shared enterprise profit--the resource owner always shares the operator's profit; (2) dispersed enterprise ownership--resources are widely distributed among operators of varying ability; (3) limited benefits of competition--the owner may not benefit from increased competition for the resource; and, sometimes (4) diluted incentives for the most capable--more capable operators receive smaller shares of the returns they generate. Implications for privatizations and venture capital arrangements are explored.
CitationLewis, Tracy, R., and David E. M. Sappington. 2000. "Motivating Wealth-Constrained Actors." American Economic Review, 90 (4): 944-960. DOI: 10.1257/aer.90.4.944
- L33 Comparison of Public and Private Enterprises; Privatization; Contracting Out
- D82 Asymmetric and Private Information
- G24 Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
- D44 Auctions