Entrepreneur or Manager: Who Runs the Firm?

Gianni De Fraja

Journal of Industrial Economics, 1996, vol. 44, issue 1, 89-98

Abstract: This paper studies the choice facing the owner of a valuable project. She can either run it herself or sell it to an outside investor and continue to work as the manager, receiving a performance related salary. Which is better? In other words, should an agent carry out a project herself or hire a principal? The main result the author establishes is that either can be preferred. The crucial difference lies in the relationship between the individual's effort and external economic conditions. The entrepreneur works harder when times are bad than when they are good, the manager does exactly the opposite. Copyright 1996 by Blackwell Publishing Ltd.

Date: 1996
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