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.
Citation2000. "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