Separation of Ownership and Control: Delegation as a Commitment Device

Aristotelis Boukouras ()

No 15/02, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: This paper provides a theoretical model for explaining the separation of ownership and control in fi rms. An entrepreneur hires a worker for providing effort to complete a project. The worker's effort determines the probability that the project is completed on time, but the worker receives private benefit s for every period she is employed. We show that hiring a manager on a short-term contract may increase firm value and we identify the conditions under which separation of ownership and control is optimal.

Keywords: commitment problem; control rights; control structure; moral hazard; private bene t; separation of ownership and control; soft-budget constraint; strategic delegation (search for similar items in EconPapers)
JEL-codes: D86 G34 J31 L22 L26 (search for similar items in EconPapers)
Date: 2015-04
New Economics Papers: this item is included in nep-cta, nep-hrm, nep-mic and nep-ppm
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