Controlling Versus Enabling

Andrei Hagiu () and Julian Wright
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Andrei Hagiu: Harvard Business School, Strategy Unit

No 16-002, Harvard Business School Working Papers from Harvard Business School

Abstract: Revenue sharing between principals and agents is commonly used to balance double-sided moral hazard. We provide a theory of how, when such revenue-sharing is optimal, a principal allocates control rights over decisions that either party could make. We show that the principal either keeps control over all such decisions, or gives up control entirely, and that this choice is aligned with whether the principal chooses to keep more or less than 50% of variable revenues. We explore how moral hazard, contractibility, and spillovers affect this choice. The theory helps explain whether professionals operate as employees or as independent contractors.

Keywords: control rights; decision authority; employment; independent contractors; organizational theory (search for similar items in EconPapers)
JEL-codes: D4 L1 L5 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2015-07, Revised 2016-07
New Economics Papers: this item is included in nep-mic and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:hbs:wpaper:16-002

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