Contractual Structure and Endogenous Matching in Partnerships

Maitreesh Ghatak and ,
Authors registered in the RePEc Author Service: Alexander K. Karaivanov

No 8298, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We analyze optimal contracts and optimal matching patterns in a simple model of partnership where there is a double-sided moral hazard problem and potential partners differ in their productivity in two tasks. It is possible for one individual to accomplish both tasks (sole production) and there are no agency costs associated with this option but partnerships are a better option if comparative advantages are significant. We show that the presence of moral hazard can reverse the optimal matching pattern relative to the first best, and that even if partnerships are optimal for an exogenously given pair of types, they may not be observed in equilibrium when matching is endogenous, suggesting that empirical studies on agency costs are likely to underestimate their extent by focusing on the intensive margin and ignoring the extensive margin.

Keywords: Endogenous matching; Partnerships; Contractual structure (search for similar items in EconPapers)
JEL-codes: D12 D21 D23 D82 Q15 (search for similar items in EconPapers)
Date: 2011-03
New Economics Papers: this item is included in nep-bec, nep-cta and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://cepr.org/publications/DP8298 (application/pdf)

Related works:
Working Paper: Contractual Structure and Endogenous Matching in Partnershipso (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:8298

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP8298

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().