Partnerships versus Corporations: Moral Hazard, Sorting, and Ownership Structure

Ayça Kaya and Galina Vereshchagina

American Economic Review, 2014, vol. 104, issue 1, 291-307

Abstract: Team 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.

JEL-codes: D21 D82 G32 M12 M54 (search for similar items in EconPapers)
Date: 2014
Note: DOI: 10.1257/aer.104.1.291
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Citations: View citations in EconPapers (25)

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