The division of ownership in new ventures

Dominique M. Demougin and Oliver Fabel

No 2006-047, SFB 649 Discussion Papers from Humboldt University Berlin, Collaborative Research Center 649: Economic Risk

Abstract: The current study investigates a tripartite incentive contract between an innovator supplying an intellectual asset, a professional assigned to productive tasks, and a consulting firm specializing in matching ideas and professional skills. A rather simple pure tripartite partnership implements the consultant's expected profit maximum and maximizes the project's expected surplus. The liquidity-constrained professional is compensated by receiving a share of one half in the new venture. The consultant's and the innovator's shares reflect the relative value of search. However, the consultant's optimal search effort to find an appropriate production partner is inefficiently low.

Keywords: new ventures; tripartite incentive contract; consulting contract; partnerships (search for similar items in EconPapers)
JEL-codes: M13 M21 (search for similar items in EconPapers)
Date: 2006
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